Crédit Agricole S.A. and Société Générale have signed a preliminary agreement in order to combine their asset management operations.

The, as yet unnamed, combined entity will be the fourth largest asset manager in Europe and the ninth largest in the world.

It will combine the entirety of CAAM group, the asset management arm of Crédit Agricole S.A., and the European and Asian activities of Société Générale's asset management business, SGAM, as well as 20% of TCW its asset management subsidiary in the United States. Ownership will be split 70:30 with Crédit Agricole S.A. taking the larger share.

It will have €638bn of assets under management, more than €1.8bn of net banking income and €0.9bn of gross operating income.

It is hoped the transaction should result in full-year pre-tax cost synergies of approximately €120m, within three years. The transaction will be accretive to net earnings in the second full year of operation, taking into account the full-year effect of synergies and excluding restructuring costs.

Georges Pauget, chief executive of Crédit Agricole S.A., said: "Given the rapidly evolving financial services sector landscape, banks are having to review their business models. The agreement we have signed with Société Générale is based on industrial logic, seeking to combine production efficiency with the power of distribution. This combination reflects the strategic logic of the Crédit Agricole business model, which is based on an overall approach from product design to market launch.

"In the recent period of market turbulence, our asset management business has demonstrated its resilience. As the market stabilises over time, we believe it has the capacity for further development and contribution to group results.

"Finally, this combination confirms the common strategic vision of both groups as regards
the future of the asset management industry."

Frédéric Oudéa, chief executive of Société Générale, added: "This major transaction will create a European leader in asset management, capable of tackling all the new challenges faced by the industry.

"It will have all the relevant attributes to become an industry leader and play a role in the market consolidation. Given our combined focus on putting clients' needs at the heart of this transaction, we believe the networks of Société Générale both in France and abroad will find that the new entity is even better positioned to serve their retail and institutional clients even more efficiently."

The news follows the downgrading of SGAM AI's downgrading by Fitch on 14 January to CAM2 - Investment Grade Corporate.