Crédit Agricole and Société Générale, France’s second and third largest banks, are combining their asset management operations in the face of the financial crisis.

Crédit Agricole will own 70 per cent of the entity and Société Générale 30 per cent, the banks said in a joint statement today. The combined business had €638 billion ($827 billion) under management on 30 September, and will rank fourth in Europe, the banks said.

“In the new landscape that is taking shape, the banking industry needs to rethink its models,” Crédit Agricole chief executive officer Georges Pauget said in the statement.

The merger was prompted by the financial crisis, as falling asset prices and rising client redemptions diminish profit across the wealth management industry. The two banks estimate that merging the operations will lead to cost savings of €120 million annually by the third year.

The wealth management arms of the banks operate in 37 countries and had €1.8 billion of annualised sales and €900 million of operating income last year, the banks said. The two companies joined their brokerage firms last year to create Newedge.

French President Nicolas Sarkozy agreed last week to provide €10.5 billion to the France’s largest banks in a second round of aid aimed at spurring them to lend. Mr Sarkozy’s government is also pushing Groupe Banque Populaire and Groupe Caisse d’Epargne to merge to create France’s second-largest bank by branches. 

Yves Perrier, the head of Crédit Agricole Asset Management, will lead the new entity as chief executive officer. Crédit Agricole will appoint the chairman and Société Générale the vice-chairman. Jean-Pierre Mustier, who left the top job at Société Générale’s investment banking unit last year following a record trading loss, helped negotiate the deal after becoming head of asset management in October.

Crédit Agricole will merge all its asset management operations into the new entity, while Société Générale will bring its European and Asian fund businesses as well as 20 per cent of its US asset management unit TCW.  Société Générale Asset Management Alternative Investments and Lyxor won’t be part of the combined entity.

Société Générale Asset Management had a €7 million operating loss in the third quarter. The unit had more than 3,000 employees and €298 billion under management on 30 September.

Crédit Agricole Asset Management had €460 billion under management at the end of September and a staff of more than 2,272.