PARIS, April 11 – French bank Societe Generale said on Monday it will leave Russia and accept a 3 billion euro ($3.3 billion) loss in income from the sale of its Rosbank unit to Interros Capital, a company associated with Russian oligarch Vladimir Potanin.
Rosbank will rejoin the business empire of Potanin, the 61-year-old head of mining giant Norilsk Nickel (GMKN.MM), which was sanctioned by Canada for invading Ukraine due to Western action against Russia’s economic and political elite.
He was not sanctioned by either the European Union or the United States.
While the financial terms of the deal were not disclosed, SocGen (SOGN.PA) said it would write down €3.1 billion, including a €2 billion hit on Rosbank’s book value and the remainder related to the Reversal of ruble conversion reserves.
SocGen, the first major western bank to announce its exit from Russia, had earlier warned of the risk of a write-down on its 99 percent stake in Rosbank. Investors said the exit from Russia removed a lot of uncertainty. Continue reading
It pledged to stick to plans for a €915 million dividend and share buyback.
Morningstar analyst Johann Scholtz noted that SocGen’s shares rose 7% on the news, even though Russia accounted for only about 2% of SocGen’s gains.
“It shows what a discount the market has priced into potential Russian risks. That draws a line in the sand,” he said.
SocGen is “essentially giving the business away for free,” Scholtz said, citing the book write-down at Rosbank.
“They can only do that if they don’t get any material compensation,” he added.
However, Interros agreed to repay Rosbank’s subordinated debt of around 500 million euros.
Overall, SocGen said the exit would save 20 basis points (bps) from its tier 1 capital ratio — the core measure of a bank’s financial strength — which at the end of 2021 was 13.7%, or 470 bps above the required minimum.
Analysts at Citi said the news was “a welcome surprise for the market given the small impact on capital and the reduction in future risk, as well as confirmation of the dividend policy.”
But the sale to Potanin wasn’t universally welcomed.
“It’s a bit troubling that this ends up being a tremendous gift to one of the wealthiest oligarchs,” said Jerome Legras, head of research at Axiom Alternative Investments.
The logo of Societe Generale Private Banking is seen at an office building in Zurich, Switzerland, October 13, 2016. REUTERS/Arnd Wiegmann
The French finance ministry declined to comment on whether the government was involved in the negotiations. It declined to comment on Potanin’s status as a sanctioned person.
Russia’s invasion of Ukraine, which Moscow calls a “special operation,” has prompted a wave of foreign companies to shut down their Russian businesses. But orchestrating a complete break is more difficult due to sanctions and political sensitivities. Continue reading
Axiom’s Legras said SocGen’s exit from Russia put pressure on others to act. Italy’s UniCredit (CRDI.MI) and Austria’s Raiffeisen (RBIV.VI) are still pondering their future in Russia, while US bank Citi is trying to divest a retail banking business. Continue reading
“The challenge in this environment is who can you sell to? It’s easier to sell at a deep discount or walk away when it’s 2% of your income than when it’s a third,” Morningstar’s Scholtz said, referring to Raiffeisen, which earns nearly 30% of net income from Russia.
Asked if SocGen’s deal means other companies could sell their assets to Russian buyers, Kremlin spokesman Dmitry Peskov said, “It depends on the decision of an owner of a particular company leaving Russia.”
ORDINARY EXIT
SocGen said the deal would allow it to exit Russia in an “effective and orderly manner” and ensure continuity for Rosbank’s employees and customers.
Potanin’s holding company had been owned by Rosbank since 1998 before SocGen acquired a stake in 2006 and merged it with its other Russian operations in 2010. SocGen paid $317 million for its initial 10 percent stake in Rosbank.
Potanin, Russia’s second richest man with a fortune of $27 billion according to Forbes magazine estimates, worked at the Soviet Union’s Ministry of Foreign Trade and later as a banker before founding Interros in 1990, an umbrella for his fortune that ranged from metal production to a ski enough resort.
In the 1990s, Potanin was Russia’s first deputy prime minister, led the first wave of privatizations of former state-owned companies and bought several large companies himself, including a stake in mining giant Nornickel.
Following Moscow’s invasion of Ukraine, which began on February 24, Potanin said the confiscation of assets from companies that left Russia would shake investor confidence for decades.
“Interros’ primary goal is to maintain Rosbank’s stability and create new opportunities for its customers and partners,” Potanin said in a statement.
Interros said the Rosbank deal should be finalized in the next few weeks after receiving all the necessary regulatory approvals.
The French financial regulator AMF declined to comment.
($1 = 0.9152 euros)
Reporting by Tassilo Hummel, Lucy Raitano, Sujata Rao and Reuters reporters. Edited by Carmel Crimmins, Alexander Smith and Mark Potter