SocGen Quits Russia With Rosbank’s Sale To Oligarch Potanin – Cryptovibes.com – Daily Cryptocurrency and FX News
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On April 11, French bank Societe Generale said it would take a 3 billion euros ($3.3 billion) income hit from selling its Rosbank unit to Interros Capital, a firm linked to Russian oligarch Vladimir Potanin, and quit Russia.
Rosbank will return to the business empire of Potanin, which has been sanctioned by Canada under Western moves against Russia’s political elite and business over its invasion of Ukraine, and is also the 61-year-old head of mining giant Norilsk Nickel (GMKN.MM).
Neither the United States nor the European Union has sanctioned him.
SocGen (SOGN.PA) said it would write off 3.1 billion euros, comprising a 2 billion euro hit on Rosbank’s book value and the remainder tied up to the reversal of rouble conversion reserves even though financial terms of the deal were not announced.
Previously, SocGen, the first major Western bank to announce its exit from Russia, had pointed out the risk of a write-off on its 99% stake in Rosbank. Its exit from Russia eliminated a lot of uncertainty, according to investors.
It pledged to stick to plans for a 915 million-euro share buyback and a dividend. Although Russia only accounted for about 2% of SocGen’s earnings, SocGen shares rallied 7% on the news, Morningstar analyst Johann Scholtz noted. He mentioned:
“It shows what discount the market was pricing in for potential Russian risks. This draws a line in the sand.”
Noting the book value write down on Rosbank, Scholtz said SocGen “essentially gives the business away for free”. He added:
“The only way they can do that is that if they get no material consideration.”
Nonetheless, Interros agreed to settle Rosbank’s subordinated debt, roughly 500 million euros.
Standing at 13.7% at the end of 2021 or 470 bps above the minimum required, SocGen’s Tier 1 capital ratio – the core measure of a bank’s financial strength – would generally be reduced by 20 basis points (bps) due to its exit.
Citi analysts stated:
“The news was a welcome surprise for the market, given the small capital impact and the reduction of future risk, as well as confirmation of dividend policy.”
The sale to Potanin, however, was not globally celebrated.
Head of research at Axiom Alternative Investments, Jerome Legras said:
“It’s a bit distressing that ultimately this is an enormous gift to one of the wealthiest oligarchs.”
When asked whether the government had a role in negotiations, France’s finance ministry declined to comment. SocGen also refused to comment on Potanin’s status as a sanctioned individual.
A wave of foreign companies has been prompted to shut down their Russian businesses as a result of Russia’s invasion of Ukraine, which Moscow describes as a “special operation”. But because of political sensitivities and sanctions, it is more difficult to orchestrate a complete break.
The exiting of SocGen from Russia has put pressure on others to act, Axiom’s Legras said. While U.S. bank Citi is trying to offload a consumer banking franchise, Austria’s Raiffeisen (RBIV.VI) and Italy’s UniCredit (CRDI.MI) are still considering their futures in Russia.
Referring to Raiffeisen which earns almost 30% of net profits from Russia, Morningstar’s Scholtz said:
“The challenge in this environment is whom can you sell to? It’s easier to sell at a deep discount or walk away when it’s 2% of your earnings than if it is a third.”
When asked if SocGen’s deal meant other companies could sell their assets to Russian buyers, Kremlin spokesman Dmitry Peskov said:
“This depends on the decision of an owner of a specific company which is leaving Russia,”
ORDERLY EXIT
The deal would enable SocGen to guarantee continuity for Rosbank’s employees and clients and allow it to quit Russia in an “effective and orderly manner”.
Before SocGen acquired a stake in 2006 and merged it with its other Russian operations in 2010, Potanin’s holding company had owned Rosbank since 1998. For its initial 10% stake in Rosbank, SocGen paid $317 million.
Before establishing Interros in 1990, a shelter for his assets which range from metals production to a ski resort, Potanin, Russia’s second-richest man with $27 billion worth of assets according to Forbes magazine estimates, worked in the Soviet Union’s foreign trade ministry and afterward as a banker.
In the 1990s, when Potanin served as first deputy Prime Minister to Russia, he conducted the first wave of privatizations of former state-owned and himself bought several large businesses, including a stake in mining giant Nornickel.
Potanin, after Moscow invaded Ukraine, which began on February 24, said that confiscating assets from companies that had exited Russia would destroy investor confidence for decades.
In a statement, Potanin said:
“The most important goal of Interros is to maintain the stability of Rosbank and create new opportunities for its clients and partners.”
After all necessary regulatory approvals, the Rosbank deal should be closed in the next few weeks, according to Interros.
AMF, the French financial watchdog, declined to comment.
($1 = 0.9152 euros)
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