SocGen sever ties with Russia with sale of Rosbank to oligarch Potanin

PARIS, April 11 (Reuters) – French bank Societe Generale said on Monday it would leave Russia and earn 3 billion euros ($3.3 billion) in revenue from the sale of its Rosbank unit to Interros Capital , a company linked to Russian oligarch Vladimir Potanin.

Rosbank will join the business empire of Potanin, the 61-year-old head of mining giant Norilsk Nickel (GMKN.MM), which was sanctioned by Canada as part of Western measures against Russia’s business and political elite following its invasion from Ukraine.

It has not been sanctioned by the European Union or the United States.

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Although financial terms of the deal were not announced, SocGen (SOGN.PA) said it would write off €3.1 billion, including €2 billion of Rosbank’s book value and the rest related to the inversion of ruble conversion reserves.

SocGen, the first major Western bank to announce its exit from Russia, previously flagged the risk of a delisting of its 99% stake in Rosbank. Investors said its exit from Russia removed a lot of uncertainty. Read more

It is committed to respecting the dividend and share buyback plans of 915 million euros.

Morningstar analyst Johann Scholtz noted that SocGen shares rose 7% on the news, even though Russia only accounted for about 2% of SocGen’s earnings.

“It shows what a discount the market was pricing for potential Russian risks. It draws a line in the sand,” he said.

SocGen is “essentially giving the company away for free,” Scholtz said, noting the writedown in Rosbank’s book value.

“The only way they can do that is if they don’t get any material consideration,” he added.

Interros has, however, agreed to repay Rosbank’s subordinated debt, amounting to approximately 500 million euros.

Overall, SocGen said the exit would slash 20 basis points (bps) from its Tier 1 capital ratio – the basic measure of a bank’s financial strength – which stood at 13.7% at the end of the year. 2021 or 470 bps above the required minimum.

Citi analysts said the news was “a good surprise for the market, given the low capital impact and reduced future risk, as well as the confirmation of the dividend policy.”

But the sale to Potanin was not universally applauded.

“It’s a bit distressing that this is ultimately a huge giveaway for 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

France’s finance ministry declined to comment when asked if the government had a role to play in the negotiations. He declined to comment on Potanin’s status as a sanctioned individual.

Russia’s invasion of Ukraine, which Moscow describes as a “special operation”, has prompted a wave of foreign companies to shut down their Russian businesses. Orchestrating a complete breakup, however, is more difficult due to sanctions and political sensitivities. Read more

Axiom’s Legras said SocGen’s departure from Russia has put pressure on others to act. Italy’s UniCredit (CRDI.MI) and Austria’s Raiffeisen (RBIV.VI) are still considering their future in Russia, while US bank Citi is trying to offload a consumer banking franchise. Read more

“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 revenue than if it’s a third,” said Morningstar’s Scholtz, referring to Raiffeisen earning nearly 30% of Russia’s net profits.

Asked whether SocGen’s deal meant other companies could sell their assets to Russian buyers, Kremlin spokesman Dmitry Peskov said: “It depends on the decision of the owner of a specific company. who leaves Russia”.

ORDERED EXIT

SocGen said the deal would allow it to leave Russia “in an efficient and orderly manner” and provide continuity for Rosbank employees and customers.

Potanin’s holding company had owned Rosbank since 1998, before SocGen bought a stake in 2006 and merged it with its other Russian operations in 2010. SocGen paid $317 million for its initial 10% stake in Rosbank.

Potanin, Russia’s second richest man with $27 billion in assets according to Forbes magazine estimates, worked in the Soviet Union’s foreign trade ministry and later as a banker before founding Interros in 1990 , an umbrella for its assets that range from metal production to a ski resort.

During the 1990s, Potanin served as Russia’s first deputy prime minister, arranging the first wave of privatizations of former state-owned companies and himself buying several major companies, including a stake in mining giant Nornickel.

After Moscow’s invasion of Ukraine, which began Feb. 24, Potanin said confiscating the assets of companies that had left Russia would shatter investor confidence for decades.

“Interros’ most important goal is to maintain Rosbank’s stability and create new opportunities for its customers and partners,” Potanin said in a statement.

Interros said the deal with Rosbank is expected to close within the next few weeks following all necessary regulatory approvals.

The French financial authority AMF declined to comment.

($1 = 0.9152 euros)

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Reporting by Tassilo Hummel, Lucy Raitano, Sujata Rao and Reuters reporters Editing by Carmel Crimmins, Alexander Smith and Mark Potter

Our standards: The Thomson Reuters Trust Principles.

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