SocGen severs Russia ties with sale of Rosbank to oligarch Potanin

PARIS — French financial institution Societe Generale mentioned on Monday it will give up Russia and take a 3 billion euros ($3.3 billion) earnings hit from promoting its Rosbank unit to Interros Capital, a agency linked to Russian oligarch Vladimir Potanin.

Rosbank will rejoin the enterprise empire of Potanin, the 61-year-old head of mining large Norilsk Nickel, who has been sanctioned by Canada beneath Western strikes towards Russia’s enterprise and political elite over its invasion of Ukraine.

He has not been sanctioned by the European Union or america.

Whereas monetary phrases of the deal weren’t introduced, SocGen mentioned it will write off 3.1 billion euros, comprising a 2 billion-euro hit on Rosbank’s guide worth and the remaining linked to the reversal of rouble conversion reserves.

SocGen, the primary main Western financial institution to announce its exit from Russia, had beforehand flagged the danger of a write-off on its 99% stake in Rosbank. Traders mentioned its exit from Russia eliminated loads of uncertainty.

It pledged to stay to plans for a dividend and a 915 million-euro share buyback.

Morningstar analyst Johann Scholtz famous SocGen shares rallied 7% on the information, though Russia solely accounted for about 2% of SocGen’s earnings.

“It reveals what low cost the market was pricing in for potential Russian dangers. This attracts a line within the sand,” he mentioned.

SocGen “basically provides the enterprise away without cost,” Scholtz mentioned, noting the guide worth writedown on Rosbank.

“The one means they’ll do that’s that in the event that they get no materials consideration,” he added.

Interros agreed, nonetheless, to repay Rosbank’s subordinated debt, roughly 500 million euros.

Total, SocGen mentioned the exit would shave 20 foundation factors (bps) from its Tier 1 capital ratio – the core measure of a financial institution’s monetary power – which stood at 13.7% on the finish of 2021 or 470 bps above the minimal required.

Citi analysts mentioned the information was “a welcome shock for the market, given the small capital affect and the discount of future danger, in addition to affirmation of dividend coverage.”

However the sale to Potanin was not universally applauded.

“It’s a bit distressing that in the end this is a gigantic reward to one of many wealthiest oligarchs,” mentioned Jerome Legras, head of analysis at Axiom Different Investments.

France’s finance ministry declined to remark when requested whether or not the federal government had a job in negotiations. It declined to touch upon Potanin’s standing as a sanctioned particular person.

Russia’s invasion of Ukraine, which Moscow describes as a “particular operation,” has prompted a wave of overseas corporations to shutter their Russian companies. Orchestrating a whole break is, nonetheless, harder attributable to sanctions and political sensitivities.

Axiom’s Legras mentioned SocGen’s Russian exit put stress on others to behave. Italy’s UniCredit and Austria’s Raiffeisen are nonetheless contemplating their futures in Russia, whereas U.S. financial institution Citi is attempting to dump a shopper banking franchise.

“The problem on this atmosphere is whom are you able to promote to? It’s simpler to promote at a deep low cost or stroll away when it’s 2% of your earnings than if it’s a third,” Morningstar’s Scholtz mentioned, referring to Raiffeisen which earns nearly 30% of web earnings from Russia.

Requested whether or not SocGen’s deal meant different corporations may promote their belongings to Russian patrons, Kremlin spokesman Dmitry Peskov mentioned: “This depends upon the choice of an proprietor of a selected firm which is leaving Russia.”

SocGen mentioned the deal would enable it to give up Russia in an “an efficient and orderly method” and guarantee continuity for Rosbank’s staff and shoppers.

Potanin’s holding firm had owned Rosbank from 1998, earlier than SocGen purchased a stake in 2006 and merged it with its different Russian operations in 2010. SocGen paid $317 million for its preliminary 10% stake in Rosbank.

Potanin, Russia’s second richest man with $27 billion price of belongings in keeping with Forbes journal estimates, labored within the Soviet Union’s overseas commerce ministry and later as a banker earlier than establishing Interros in 1990, an umbrella for his belongings which vary from metals manufacturing to a ski resort.

Throughout the Nineties, Potanin served as Russia’s first deputy Prime Minister, masterminding the primary wave of privatizations of former state-owned and himself shopping for a number of massive companies, together with a stake in mining large Nornickel.

Following Moscow’s invasion of Ukraine, which started on Feb. 24, Potanin mentioned that confiscating belongings from corporations that had left Russia would shatter investor confidence for many years.

“Crucial aim of Interros is to take care of the soundness of Rosbank and create new alternatives for its shoppers and companions,” Potanin mentioned in an announcement.

Interros mentioned the Rosbank deal must be closed within the subsequent few weeks in spite of everything mandatory regulatory approvals.

French monetary watchdog AMF declined to remark.