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A French head rolls as Societe Generale reorganizes after selling LA's TCW

L.A.-based TCW has been bought by the Carlyle Group, a huge private-equity firm. But an executive at the struggling French banking giant Societe Generale, TCW's former owner, has left.
L.A.-based TCW has been bought by the Carlyle Group, a huge private-equity firm. But an executive at the struggling French banking giant Societe Generale, TCW's former owner, has left. Getty Images

Los Angeles and Paris couldn't have less in common. But when it comes to a critical member of Southern California's cluster of big bond funds, the City of Angels and the City of Lights have had plenty of dealings in recent years.

France's second biggest bank, Societe Generale, announced Wednesday that it posted a a loss in the fourth quarter of 2012 and that it was reorganizing, consolidating into "three main units," according to Bloomberg.

Societe Generale has been trying to get its business back in order since the financial crisis. It's dealing with new European banking regulations, the impact of bad bets on subprime mortgages, and the fallout from a 2008 trading scandal that involved disgraced banker Jerome Kerviel.

As part of its strategy, Societe General recently completed a $780 million deal to sell TCW, an L.A.-based firm with $135 in assets under management, to the giant private equity firm Carlyle Group and a group of employee owners.

Societe Generale bought TCW in 2001 for more than $1 billion.

The employee group is headed by a core group that joined TCW when the company acquired Metropolitan West Asset Management (MetWest) in 2010 after what would become the controversial departure of TCW's star trader, Jeffrey Gundlach.

Gundlach would immediately go on to form DoubleLine Capital, also based in L.A. In three years, he and former TCW colleagues would build it from a firm with no clients into a fast-growing, $53-billion-plus competitor to TCW and Southern California's two other major bond funds, Newport Beach's PIMCO and Pasadena's WAMCO.

Meanwhile, the Societe Generale executive who, with then TCW CEO Marc Stern, presided over Gundlach and numerous key associates' departures has now left the French bank.

Jacques Ripoll, who until today ran Societe General's global investment operations (of which TCW was part until the Carlyle deal closed), had flown to L.A from Paris and was at TCW's Downtown offices on December 4, 2009.

While the company sent Gundlach packing, Ripoll and TCW's Chairman, Robert Day, were doing damage control in other parts of TCW's office with Gundlach's associates on the mortgage-backed-securities trading desk. 

It was a drastic turnaround. Gundlach had been developing a plan to buy a majority stake in TCW, but as emails that emerged during a subsequent lawsuit demonstrated, dispensing with Gundlach and buying MetWest was Societe Generale's favored strategy.

TCW needed to rapidly prevent a flight of personnel and funds once the news got out that it had exiled Gundlach. He had been nominated to be the Fixed Income Manager of the Decade by Morningstar, and was managing tens of billions while making tens of millions.

But Stern had figured out a way to do it: Convince Gundlach's team to stay, and cover losses by acquiring MetWest.

Ripoll meet with Louis Lucido,then a co-group manager with Gundlach, now DoubleLine's Chief Operating Officer.

"I have something important to tell you," Ripoll told Lucido, who had no idea the Societe Generale executive was even in the building, much less waiting for him on the 17th floor. It was just past one o'clock. The next day, Saturday, Lucido and Gundlach were hosting — and paying for out of their own pockets — a holiday party for more than 200 clients and members of their TCW group.

Lucido was planning to head to LAX to pick up some relatives flying in from Toronto. "I was going to be like Elvis and exit the building," he said.

Ripoll again told Lucido that he had something important to tell him. And then he said it again.

"Well, what the hell is it?" Lucido asked.

Ripoll leaned in. "We were about nose to nose," Lucido recalled.

"We have fired Jeffrey Gundlach," said the Frenchman, a very Gallic product of the Ecole Polytechnique, where many of the men who run France's elite businesses and banks are nurtured. "What do you think of that?" 

Lucido was stunned. He explained that the decision would have a negative impact on TCW's ability to attract and maintain clients.

"We are prepared to lose clients, we are prepared to lose people, and we are prepared to lose revenue so that we can rebuild the firm," Ripoll said.

"That doesn't sound like much of a plan to me," Lucido said.

But Ripoll wanted Lucido to stay — minus a portfolio to manage, people to supervise, or any meaningful resources. 

Lucido wasn't interested. So he headed to the airport, never to return to a firm where with Gundlach he had spent 80-hour weeks creating a fixed-income powerhouse that weathered the financial crisis.

The rest of Gundlach's team quickly followed. The MetWest acquisition went through and now MetWest CEO David Lipmann has replaced TCW CEO Stern, who has become TCW's chairman.

But Ripoll is now out of the picture, with no announced plans. In the end, Societe Generale was prepared to lose more than just a extremely successful group of bond traders in Los Angeles. It was prepared to lose one of its own — even if it didn't know it in 2009.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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