SocGen Revamps Structured Notes Business to Fight Credit Risk

Societe Generale SA plans to move more than half of its sales of structured notes to a subsidiary that can issue collateralized securities by year-end, after investors deserted the notes during the credit crisis.

SG Issuer is taking over from a special purpose vehicle that was prohibited from selling secured notes, said Pierre Lescourret, SocGen’s head of structuring for Europe. France’s second-biggest lender issued $93 million of notes this year backed by collateral, including bonds and stocks, compared with zero in the same period of 2012 and $1.6 billion of unsecured notes, according to data compiled by Bloomberg.

Investors abandoned structured notes during the financial crisis as they became wary of the prospect of bank defaults, with the cost of insuring against losses on financial company debt surging to a record in November 2011. The securities typically package derivatives with unsecured bank bonds, exposing buyers to the credit risk of sellers.

“Due to the European banking crisis in 2011 we wanted to set up a way of issuing notes backed by collateral as a solution to issuer credit risk,” Lescourret said in a phone interview from Paris.

SG Issuer replaces Societe Generale Acceptance NV, an SPV incorporated in the Caribbean island of Curacao that sold just under half of the $27.5 billion of structured notes issued by SocGen and its units since 1999, according to Bloomberg data.

Buyers of the new unit’s collateralized securities will pay a fee to cover the services of Bank of New York Mellon Corp., the custodian for the collateral, and another charge for SocGen to source the assets backing the notes, said Lescourret.

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