Building up a local bank for Chinese people is Societe Generale's strategy in China, featuring a typical "Chinese approach."

"We don't want to be a foreign bank only targeting a small number of wealthy people. Instead, we would like to be a universal local bank serving all Chinese customers," said Marc Poirier, China Country manager of Societe Generale.

According to Poirier, fully understanding China and respecting its rules and people is the striking advantage of Paris-based Societe Generale (SG), one of the leading financial service groups in the euro zone.

Take SG's bidding for a stake in the Guangdong Development Bank (GDB) as an example, the French bank teamed up with petroleum giant Sinopec at the beginning of the battle and then included top steelmaker Shanghai Baosteel Group Corp.

"Our local partners can help us better understand China and the demands of Chinese customers.

Poirier confirmed that Baosteel Group Corp and Sinopec Corp have agreed to take equal 20-per-cent stakes. Canadian fund manager Caisse de Depot et Placement du Quebec recently joined the Societe Generale consortium, aiming to take a 5-per-cent share, while two smaller Chinese partners joined in December 2005 to buy a further 20-per-cent stake alongside Societe Generale.

"We have made an offer, and we are ready to sign a cheque," said Daniel Bouton, chairman of SG. "The decision was originally supposed to be made by the end of January."

GDB's national outlet is the best platform for SG to run its retailing business, which remains the backbone of the French bank.

"GDB will be our only investment in a commercial bank for retail banking, consumer finance and credit cards," Poirier said.

But for the moment, SG only runs corporate and investment banking businesses (SG CIB) in China.

"In the CIB aspect, further developing the derivatives business will be our major focus in China for the year since we have been quite strong in structured and export finance," Poirier stressed.

For SG Chairman Daniel Bouton, equity derivatives are important.

"A main pillar of this corporate and investment bank is equity derivatives, both in terms of revenues and management capabilities," he said.

JP Morgan's analysts also suggest that SG is better placed than any other bank to benefit from the growth of equity derivatives, in particular in the retail and private banking markets.

They say equity derivative businesses should be valued at 14 times earnings, rather than the traditional eight times because revenues and profits are much more stable than previously believed.

And they believe equity derivatives should generate a 30 per cent to 40 per cent net return on equity, in addition to a 15 per cent per annum revenue growth over the next three years.

Then how could SG stay ahead of the game in equity derivatives?

For one thing, it has taken full advantage of its first-mover position. Secondly, it invests heavily in its technology infrastructure, to the tune of US$250 million a year just to update IT systems, according to insiders.

Meanwhile, SG continues to attract the youngest and brightest mathematicians to its quantitative modelling team; at any point, SG might have up to 50 highly trained scientists working in product innovation. Over the past three years, the division has hired on average 120 staff a year to its front-office team. It is therefore a business with high barriers to entry.

The other two major business lines for SG in China are special financial services and asset management.

In 2006, SG set up a leasing and renting arm in China, a fully owned subsidiary for leasing and fleet management. It also launched an equipment and vendor finance business.

"We hope to enter the consumer finance market, including auto financing, consumer loans and credit cards," said Jean-Francois Gautier, head of SG's special Financial Services sector.

(China Daily 10/25/2006 page19)