With his pioneering work on the analysis of black holes, the late, great Stephen Hawking might have been interested in recent events at the top of Société Générale, where a phenomenon that could be described as a double power vacuum seems to have emerged.
This follows the departure of the French bank’s highly regarded deputy CEO Didier Valet, who resigned last week following what SG called a “divergence of approaches” related to investigations in the US over the suspected Libor rigging around the time of the global financial crisis. Last August, US authorities charged two former SG managers with taking part in a scheme to manipulate dollar Libor rates.
Valet’s resignation was the action of a highly principled man who stepped down on the grounds that he was chief financial officer during the period when the misconduct is said to have taken place. There is no suggestion of any wrongdoing and even in the fiercely political world of French banking there was a consensus within and outside the firm that this was a man of the utmost integrity taking a bullet for the greater good.
Valet saw it as his duty to step down as the French bank came under pressure from US regulators ahead of the bank’s settlement, which could come in the next weeks or months, according to sources. SG said at its annual results last month that it had set aside €2.3bn for upcoming litigation.
Demanding a senior scalp seems to be standard US practice and bankers are drawing parallels of what happened at BNP Paribas in 2014 when Georges Chodron de Courcel stepped down as chief operating officer even though there was no hint of him being involved in any wrongdoing as part of the French bank’s settlement of allegations it violated sanctions.
Given that Valet is clearly a fall guy, SG’s “divergence of approaches” line adds a layer of conspiracy that is as unnecessary as it is inaccurate. “I don’t know why they said that,” said one experienced SG watcher. “The point is that Didier is one of the good guys of finance and he fell on his sword.”
The bank said Valet’s action was taken “to preserve the bank’s general interest”, but that too could prove to be a questionable claim. SG has promised to appoint a successor shortly while CEO Frédéric Oudéa assumes Valet’s duties on an interim basis.
Who next?
But there is no obvious candidate to take Valet’s place. As well as running the corporate and investment bank since 2012, Valet was appointed deputy CEO responsible for global banking and investor solutions in January 2017, adding private banking, asset management and securities services to his remit.
Internally, Valet was seen as a leading candidate to follow Oudéa as the bank’s next CEO, and one source said his departure holes below the water what passed for a succession plan. “It’s like a double departure,” said one source.
It is also awkward timing coming just months after the bank approved a new three year strategic plan aimed at boosting returns.
Valet certainly looked like a CEO-in-waiting when the next strategy cycle comes to an end in 2020. He joined the firm 18 years ago as head of SG Securities’ European Banking Research team. Within three years he was appointed head of strategic performance management.
When Oudéa became CEO in 2008, after the bank racked up a €4.9bn loss in the wake of the Jérôme Kerviel trading scandal, he picked Valet as his CFO, a post he occupied for four years until his appointment as head of CIB in 2012.
Under his leadership, he repositioned SG around its core strengths in equity derivatives, project finance and debt capital markets, dialling down its expansion in M&A and ECM. Then, last January, Valet was appointed as one of three deputy CEOs alongside Severin Cabannes who is responsible for finance, risk, compliance and resources; and Bernardo Sanchez Incera, who overseas French and international retail banking, financial services and insurance.
Not only was Valet responsible for the biggest chunk of group revenues, but neither Cabannes, who joined from the French post office in 1997, nor Sachez Inchera, who comes from a retail background, is seen to have sufficient pedigree. As one former SG executive put it: “There is no one with Valet’s experience within the firm.”
Some senior French bankers suggest that Oudea may be forced to look outside for a successor, possibly by reappointing a former SG banker or looking to poach someone from a rival. But given that SG wants a quick appointment, launching an external search seems unlikely. Added to that, Valet has stepped down at the start of the three year strategy cycle, and it will be hard to find someone willing to slot into a business, rather than having a remit to shape it.
Oudéa has rotated his senior team before in his decade as CEO and will likely do so again as he looks internally for a solution. According to two sources, the slate of potential successors to Valet includes CFO Philippe Heim, and chief risk officer Diony Lebot.
Heim was appointed to his job in March 2013 and is intimately connected with SG's strategy, while Lebot, who had wide ranging experience before taking her current role in July 2016, is highly regarded. But with no single individual seen likely to take over Valet’s entire remit, Oudéa may resort to a fudge by dismantling the structure he put in place a year ago.
One insider suggested Oudéa could hand Valet’s responsibility to Cabannes, then promote Lebot to take the rest of his remit. This solution would run against the bank’s strategy of greater alignment between related business units that Oudéa has championed, but it might serve as the best option.
Working on their ABS
Some reports have named Thierry D’Argent and Sylvie Rémont, the co-heads of global coverage and investment banking, as potential candidates but GlobalCapital understands neither is considered a contender to take Valet’s job, given the balance of SG’s CIB towards equity derivatives, structured products and debt capital markets.
At the bank’s investor day at the end of last year, it made a worldwide push in equity derivatives a priority while Valet said that it would look to boost its financing and advisory revenues by 3% over the next three years by boosting areas such as asset-backed products and secured lending.
There were no specific plans to grow either its M&A or ECM businesses, which sit within coverage and investment banking.
Since joining from JP Morgan in 2009 D’Argent has built the firm’s M&A business in a push that resulted in the hiring of hundreds of bankers. The aim was to broaden the bank’s industry expertise and enable it to be part of a plan to build broader institutional relationships at a senior level. But the French bank does not regard this as a priority and instead sees greater merit in building relationships from the DCM side of the bank, as proven by its recent success in the US, where it quadrupled revenues between 2014-2016 under Andrew Menzies, with a string of big bond deals for the likes of Anheuser-Busch Inbev .
This success resulted in Menzies moving back to London to become global co-head of corporate DCM last year and the bank will hope any fallout from the Libor investigation will not undermine the rebuilding of its Americas operations.
“They can’t compete on ECM or M&A with the big American banks,” said one former banker, “but they can build an advisory business around their debt offering.”
The bank’s relationships will be built from its industry teams, rather than from products such as M&A. At any rate, the bank has focused its coverage efforts around a smaller number of sectors where it has a strong presence, such as energy and natural resources, FIG, retail, and media and telecoms.
Anyone looking to fill Valet’s chaussures would do well to comprehend these businesses. “The person [to succeed Valet] needs to have an understanding of risk and credit,” said one insider. “It would be a huge surprise if they came from any other part of the business.”
Other potential candidates in the mix could include Frank Drouet, the bank’s global head of markets, who comes from the right side of the business but is not seen as ready to step into Valet’s shoes as he has only been in his job since April 2016, when he was promoted following the departures of Dan Fields and David Escoffier. One banker suggested Pierre-Yves Bonnet, but he has only recently moved from his role as head of FIG to run SG’s Chinese operation.
Valet’s departure has once again highlighted an industry wide problem. For all of the talk by banks about having a strong bench, in most cases, succession planning remains weak. The smooth talking Oudéa rose to his position as a result of the Kerviel trading scandal that prompted the resignation of Jean-Pierre Mustier, who is now CEO at Unicredit. Valet’s departure is the most significant event at the bank since then and it provides a high profile scalp. While Valet was CFO during the period that the investigation is understood to cover, it is Oudéa who built his reputation on recasting SG’s culture after Kerviel.
“Didier Valet succeeded in transforming the corporate and investment banking activities, building a profitable and sustainable model,” SG said in the statement.
One of his biggest initiatives he had overseen since taking his new job last year was to bring the firm's global transaction banking unit into his banking and investor solutions unit, with a plan to generate €350m in revenues in the coming years. This strategy seems a world away from high rolling risk, and preaches caution. But the loss of Valet would suggest it needs to be more careful still.