Bucking a trend among major international banks to build up capital markets operations at the expense of commercial banking, France's Societe Generale is keeping a foot firmly planted in both domains.

"You cannot be a purely commercial bank because classical, wholesale lending cannot survive by itself," says Marc Vienot, chairman and chief executive of France's fourth-largest bank.

"But the question is to what extent should you quit commercial banking in order to enter a world that is under the control of very powerful institutions?"

Societe Generale sidesteps the entire question by viewing its operations as a single entity. "The real key is to make the whole thing work together," says Mr. Vienot. "Rather than moving from one culture to another, we prefer to have an array of products and coordinate our operations as needed."

Within the United States, Societe Generale remains primarily a commercial bank, even though it has a securities subsidiary that was grandfathered in under the 1978 International Banking Act.

The bank derived roughly 15% of its $684 million in worldwide profits from the United States in 1993, the last year for which figures are available. (Societe Generale will not report 1994 results until March 15).

Although earnings worldwide are divided roughly in half between investment and commercial banking, the majority of earnings in the United States still come from commercial banking.

With some 10% of its total consolidated assets of $291 billion in the United States, the group is one of the largest foreign financial institutions operating here. The volume of U.S. loans and commitments has been increasing by 15% annually for several years, executives say.

However, Mr. Vienot points out that this rate of growth is unlikely to continue, mainly because Societe Generale prefers to build up revenues from fees and commissions rather than from lending.

Contrary to policies pursued at other big European institutions, which have significantly cut back their U.S. commercial banking activities in favor of investment banking, Societe Generale has no intention of scaling back .

With an AA credit rating, a large international network, and a profitable, liquid parent company, the bank has ample room to maneuver.

"Our network gives us a competitive edge and we have a rather focused strategy," Mr. Vienot says.

That, adds Jean Huet, head of commercial banking operations in the United States, means sticking to relationship banking with the Fortune 500 companies and developing specialized operations in project finance, structured finance in media and communications, energy, public finance, utilities, and trade finance.

"We're not a purely transaction-oriented bank," says Mr. Huet. "And people remember that we stayed in places like Texas when other banks pulled out."

In addition, Societe Generale is also looking to develop business selectively with smaller, promising "internationally minded" companies with between $200 million and $500 million of revenues. But it is not, by any means, "going into the middle market," according to the banker.

"Our international network is efficient, makes money, and gives us an edge against our competitors," Mr. Vienot says. This advantage has become even more pronounced in dealing with U.S. companies since most large U.S. banks have effectively dismantled their commercial banking operations in other countries.

In line with the policy of selectively developing an array of U.S. operations, the bank is expanding treasury and trading activities here as well as specialized units for commodities and derivatives.

The bank currently has an application pending to engage in higher residual value leasing and is also seeking approval to trade nonfinancial futures and options, such as agricultural and energy products. In May, Societe Generale obtained Federal Reserve approval to open a representative office in Atlanta and to expand the securities-related activities of its Chicago-based subsidiary, FIMAT Futures USA.

Societe Generale's operations in the United States date back to 1939, but did not really get off the ground until the 1980s, when it withdrew from a consortium of European banks that set up European American Bank.

"Fifteen years ago, we were just another plain vanilla lender," Mr. Vienot recalls.

One good reason for the recent buildup in the United States as well as in other areas, such as Eastern Europe and Asia, is that strong profits and growth over the last few years have helped Societe Generale offset a downturn in activity at home. Societe Generale's outstanding loans in France dropped by 3% last year.

"Banking activity is lagging in France. We've hardly made any new loans and the corporation is very liquid," says the banker.

Unlike several other big French banks, which had their earnings battered by high provisions for excessive real estate and international corporate lending, Societe Generale has come through the recent recession in fairly good shape.

Mr. Vienot declined to divulge 1994 earnings, but said earnings would be roughly in line with last year, mainly as a result of reduced provisions.

Analysts say that Societe Generale's greatest asset is its consistency and caution, as well as its focus on developing a limited range of areas where it can build up a competitive advantage.

"Mr. Vienot has a fairly good and well-developed sense of what he doesn't want to do. And he won't do it if what he thinks is current fashion might not fit into Societe Generale's scheme of things," says John D. Leonard, a banking analyst with Salomon Brothers in London.

Mr. Leonard noted that, for example, not only did Societe Generale refrain from engaging in excessive real estate and syndicated corporate lending, which triggered major problems for other big banks, it also refrained from following other banks into costly ventures in insurance .

"They have a good sense of what their limits are and they haven't tried to do everything for everybody," Mr. Leonard said.

Adds Bryan Crossley, a banking analyst with Hoare Govett in London: "You can only judge them by their results and their results are clearly and consistently superior to their peer group in France."

"They have a very strong corporate culture and they're very much a tradition-driven institution."

The 67-year-old French banker has a deep sense of history himself. "We've been around since 1864," he observes. "We've survived and we've been successful elsewhere, so why shouldn't we succeed in the United States?"

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