Societe Generale has witnessed many crisis periods and lived to tell the tale, after all the French bank has been in existence since 1864. Eddy Abramo, CEO of Societe Generale Private Banking for the Middle East tells Joanna Andrews how the recovery of the regions fortunes are the recipe for success
Societe Generale had a fair share of exposure to the European debt crisis. The Paris-based bank saw profits plunge in the last quarter of 2011 as it continued to deal with the fallout from the sovereign debt crisis and economic turmoil. Societe Generale took additional charges on the value of its Greek government bond debt.
However, its private banking division saw revenues increase 9 per cent for the full year.
"Every crisis comes with opportunity," says Abramo, "Throughout the years we have proved to be a resilient bank. We have learned from each crisis and this helped us understand more our clients' needs and be reactive".
Societe Generale Private Banking has its Middle East headquarters in Dubai. The French group's private banking business offers many products including international wealth management, global expertise in mutual funds, alternative investments, private equity, structured products and real estate.
A 'local' global company
"Our approach combines global access to the world's best investment opportunities with independent advice and analysis from our experts. Our main aim is to build client wealth, not push for products, and thanks to the global approach we managed to maintain and increase our portfolio of clients even during the downturn," he says.
Abramo says Societe Generale Private Banking is 'glocal bank', which he defines as "a global company with local positioning".
"We have global market managers who follows a client lines all around the world. We have the localised teams in all the entities to follow our clients, whether they be Arab, Russian or NRI."
FAMILY MAN
Abramo, who is nearly 40, is a family man. The half French, half Sicilian has twin boys age seven, and 'a little princess who is five'. In November 2011, he won the 'Outstanding Young Private Banker Award' from Private Banker International (PBI).
He started his career at Societe Generale Group in 1997 as a discretionary portfolio manager for the private banking business in Paris. He was appointed CEO of Private Banking Middle East in 2009.
What are you advising your clients at the moment given the volatility in the markets?
With a disorderly default of Greece off the table (for now) and ECB liquidity support alleviating near-term threats to the financial sector, the environment for European equities has improved. Concurrently, ongoing improvement in US economic data and the relative economic strength vis-à-vis the Euro zone supports the view that US equities could continue to outperform on a three to six month basis. Policy support in Japan designed to counter Japanese yen appreciation would be supportive for Japanese equities.
Having said that, we recognise that risks remain, as growth prospects still look quite vulnerable in Europe, and the worsening situation in Portugal and Spain could come under focus and spark new volatility.
Nevertheless, in such a context, we have turned more positive on equity markets globally speaking since mid-January, and thus recommend increased exposure to equities especially US equities and Emerging Markets, given our overall more constructive view on risk appetite.
Regarding corporate bonds, ongoing Central Banks accommodative policies have lent strong support to credit globally speaking.
Indeed, amid better market sentiment, the volume of new corporate bonds issuance picked up, reaching exceptionally high levels compared to last year. In parallel, investor demand has held steady, translating into record inflows, notably in the US.
The Q4 earnings season was globally supportive for all credit markets. In the US and Asia, refinancing risk is not an issue and credit metrics should remain supported in 2012 given positive GDP growth.
After the strong Q1 rally, we have shifted to a more neutral stance on US and European Investment Grade markets but kept a positive grading on high yield bonds (US and Asia preferred) given attractive valuations and ongoing investor search for yield.
Where do you see the pockets of value in the equities market specifically?
We see opportunities in the US and emerging markets equities and Asian Investment grade and high yield bonds.
As for US equities, the recovery in the US is becoming more anchored with a good environment for US corporations; liquidity (the possibility of QE3), fiscal stimulus, an improving labour market, a stabilising real estate market and relatively cheap energy (like shale gas). One negative element to watch out for is that margins seem to be peaking.
Euro zone equities: Since last November, the financial stress weighing on the Euro zone has gradually receded, thanks to the ECB's new policy and to political changes in some key countries. While execution risks remain high, and our expectation for zero growth in 2012 could put pressure again on such countries as Spain or Portugal, the decline in risk and the 'liquidity effect' justify an upgrade, in our view, mainly driven by the stabilisation of the financial sector.
What's the outlook for emerging market equities?
We are confident on the long-term prospect for emerging market equities due to its current valuation, the expected upturn of emerging market economies and the recent US economy rebound.
On the upside, emerging markets monetary and fiscal policies have turned supportive of growth with Central Banks lowering rates and easing credit standards. These pro-growth policies should help emerging market economies rebound in 2012. We buy Brazilian equities together with China, South Korea & Russia. They are our favourite markets.
But we would like to remind that although on the economic front, the emerging market growth outlook is positive, some risk remains and should be closely monitored. For example, the continuing geopolitical risks, such as the Iranian crisis, the Syrian riots and the Russian protests represent a great to global economy stability and particularly to oil prices.
Plus, a lack of decoupling from the European crisis which still represents a threat to emerging markets, especially on financial flows to emerging markets and there are uncertainties on the impact of changing local monetary policies.
Gone are the days when investors put all their eggs in one basket. How important is diversification right now?
Diversification is at the core of our approach in terms of recommendations to our clients.
In order to be in line with this principle, Societe Generale Private Banking has developed a Strategic Asset Allocation model for its clients. The main goal is to provide each client with a personalized study of his portfolio based on a powerful statistical model that will help him to assess what the average and extreme risks are.
We believe that such an approach allows us to deliver a transparent and expert advice based on objective assessment of the client portfolio. Since we launched this 'Dialogue and Asset Allocation' approach in 2010, we have seen a strong interest coming from our clients on this type of analysis of their asset allocation.
What would you consider as an ideal portfolio in the current climate?
In Private Banking, there is not any ideal portfolio per se, as each client has different needs. Nevertheless, we could try to define some of the features that we think should be in such a, ideal portfolio for an investor:
A broad and ideal diversification in terms of asset classes (both listed and non-listed). Equities, Bonds (sovereign and corporate bonds), real estate, Hedge Funds (the new breed of investment solutions through Hedge Funds Managed Accounts seems promising), commodities (mainly gold), currencies.
Geographical diversification is important and not just in the main developed markets but also in emerging ones. In terms of products, we would privilege a mix between direct holdings for equities and bonds but we would also recommend some very specific funds that provide access to strategies that the investor cannot really replicate on their own such as high yield short term duration, or some global deep value equities investing through global mid and small caps.
Because our clients want to have some protection on the downside, especially when they are faced with extreme markets events, we would also recommend specific products structured to give a partial or full protection on the capital invested. We think that the parameters on some asset classes can make these products very interesting but there is definitely a sense of market timing when you recommend them.
Is it still a matter of preserving wealth as opposed to growing it?
We do not oppose preserving wealth and growing it. Indeed, our clients - who live in GCC countries- are exposed to a quite high level of 'personal inflation'.
In this environment, you have to be sure that your wealth grows, at least as much as your cost of living does. This is why when we advise our clients on their portfolio we also take into account their 'personal inflation'.
Of course, we think that wealth should be preserved from extreme market events thanks to an efficient diversification and the use of some specific products that can provide a good level of protection in case of bear market corrections.
Last but not least, it is also very important to understand the structure of the wealth of the client. They have very often gotten wealthy through the good growth of their family business. It is very important to assess whether this wealth driver is still running within the family, allowing our client maybe to take more risk on their financial assets as they receive a good income from the business or if this not the case, a more conservative approach has to be adopted to protect their financial wealth.
What has been the main impact of the Arab awakening?
Based in the UAE, the first immediate impact was the flow of new money coming from the region to the UAE. The DIFC is a stable and very well organised financial hub.
Tell me about your clients base here and the importance of family offices?
In the region, we have three client lines:
1) Non Resident Indians (NRI) clients
2) Arab clients
3) International clients
Obviously the first two are the most important lines managed from the DIFC.
When you know that in the region 62 per cent of the local fortunes are run by families, the answer seems easy. In fact, the family office focuses only on few clients, usually from the same family.
We recently launched a specific department called Private Investment Banking (PIB) dedicated notably to family offices. These 'clients' need a Private Banking approach with the Investment Banking capability (financing etc...). This is why we created PIB.
Out of all the products you offer here, which has fared best since 2008?
We are not product pushers. For us and our clients, the best product since 2008 was the product which fits perfectly your needs. It is not only a question of returns but also a question of advisory. Due to the high level of volatility we had these last years, the buy and hold was not a good solution in the day to day management of your portfolio. You need to have a dynamic asset allocation in order to adapt your investments to the environment. For this topic, we use Dialogue and Asset Allocation tools. This is the best way to proceed in these markets.
Have the Gulf fortunes recovered since the downturn?
Our clients' wealth could be split roughly in two parts: Equity/bond portfolio and real estate portfolio. Following the crisis we had these last 3-4 years especially at the end of 2009 or at the end of Q1 2010 for UAE, the ADX or DFM index have recovered especially since January 2012. Regarding Real Estate, if we have a look at the DFM real Estate and Construction Index, we see that in Q1 2012, we saw a very strong growth reaching exceptionally high levels compared to last year.
If I take some numbers from one of our recent surveys, we can see that the growth since 2010 for billionaires in the region who run their own business is around +2 per cent (compared to -3.6 per cent since 2008). So yes, we see an improvement since the beginning of 2012.
And what is the sentiment of your clients here in the wake of the crises?
Ours clients today are in a 'risk-on-mode', yield hunting is back.
Are you seeing risk appetite increasing? Or is there still a more balanced approach to asset allocation?
During the 2011 European crisis, we saw a huge increase in investors risk aversion including our clients. But, ECB liquidity injections have significantly eased market concerns regarding the handling of the Euro zone debt crisis. And this has clearly improved the risk appetite. Nevertheless, Investors are still waiting for more good news from the corporate side to start again buying equities especially after the rally that started at the last quarter of 2011.
An area where Investors have clearly increased their purchase is corporate bonds. On this asset class, appetite is high.
Do you see crises as times of opportunity and what have you learned from the crisis?
Of course, the recent volatility brings investment opportunities and we have to keep in mind that it is during crisis time that we can benefit of interesting entry points on markets.
If we consider that markets are a zero sum game, what some people lose in one hand, some people win in the other hand. It means that today, we need more than ever to focus on what we call asset allocation. Our portfolios have to be well diversified and the key words are definitively dynamic asset allocation.
Who do you admire most, who are your heroes?
Without hesitation it has to be Steve Jobs, he is really a very fascinating man and today I am reading the Warren Buffet book. I admire the man himself, not just the wealth side. In 1999 he said at a conference, 'The next 17 years will be very difficult'. He said this even before the IT bubble!
© Banker Middle East 2012
