Wry & Dry

A bank finds a different source of profits

Oils ain't oils.  And banking ain't banking.  Well, not any more.  Australian banks have become, effectively, building societies (but paying their senior executives as though they are Wall Street investment bankers, well, second tier).

The home-lending party is ending.

But some overseas banks have found other ways to leverage their balance sheets.  Société Générale, France’s No. 2 bank, generates its best returns from a more prosaic business: leasing fleets of motor cars.  The development of the car-leasing operation and its growing importance to Société Générale shows how a bank can successfully look outside traditional banking for profitable growth.  

Just look at the below data:

Car leasing

Source: Bloomberg.  H1-16.

Société Générale's car-leasing unit, ALD, owns and manages 1.3 million cars.  It is now Europe's number two car lessor, after Volkswagen.  It had a return on equity of 34% in the first half, more than twice the level of profitability of its global markets and French consumer-banking divisions. 

That is the sort of ROE W&D last saw pre-GFC in some markets' businesses.

ALD accounted for almost 9% of the bank’s profit in the first half of the year, while using only about 1% of its balance sheet.

Nice work, if you can get it.