Société Générale will take a €3.1bn hit after agreeing to exit Russia by selling its stake in Rosbank to an investment company founded by billionaire Vladimir Potanin.
The French bank said on Monday it was selling its entire 99.8 per cent stake in Rosbank, as well as its Russian insurance operations, to Potanin’s Interros Capital after coming under scrutiny over its large exposure to the country following Russia’s invasion of Ukraine.
Along with Austria’s Raiffeisen Bank and Italy’s UniCredit, SocGen is one of the western European financial institutions with the largest presence in Russia, and the first of the three to have found a way to sell out.
SocGen, which first bought a stake in Rosbank from Interros in 2006 before cementing control two years later, said it would write off of about €2bn for the net book value of the divested activities and a further non-cash write-off of €1.1bn.
“The closing of this operation should occur in the coming weeks,” SocGen said, adding it aimed to exit the country “in an effective and orderly manner”. SocGen shares were up more than 6 per cent in early trading.
Among Interros’s other investments are stakes in metals company Norilsk Nickel, which Potanin had long fought for control over. Potanin, Russia’s richest man, has been sanctioned by Canada.
SocGen said Interros would repay a subordinated debt loan it had granted to Rosbank as part of the deal. It had previously said the loan amounted to €500mn.
The group also said its core tier one capital ratio — which stood at 13.7 per cent at the end of December — would take a 20 basis point hit from the sale, adding that it still stood well above minimum regulatory thresholds.
“The sale of the Russian operation at a manageable impact to its CET 1 ratio is positive,” said RBC analyst Anke Reingen. “It should remove the overhang” of negative sentiment from investors.
SocGen also said it would maintain its 2021 dividend payout plans and carry on with a €915mn share buyback.
The Russian setback came just as SocGen was making headway with its latest turnround plan under long-serving chief executive Frédéric Oudéa, who had sought to stabilise the bank after a 2008 rogue trading scandal.
Oudéa has navigated several crises since, including losses on equity derivatives suffered at the height of the coronavirus pandemic. He made a further push over the past year to try and lower risk-taking in SocGen’s investment bank, and was trying to increase profitability to boost the lender’s share price. SocGen posted its highest ever annual profit in 2021, helped by an economic bounceback across Europe.
Unlike its rivals, SocGen had not previously flagged its intention to exit Russia even as a wave of companies from fast-food group McDonald’s to oil major BP said they would leave in the days after the war in Ukraine started, though many have either not detailed how they would exit or warned it could take time. Some such as French energy company TotalEnergies have said selling out posed the problem of handing funds to Russians the west wants to sanction.
SocGen had contemplated a sale from the beginning of the war but kept that option private due to the sensitivity of such discussions, one person familiar with the matter said. The bank had also warned about the risks of an expropriation by the Russian state.
European banks have been scrambling to find ways to leave the Russian market following the February 24 invasion and the subsequent imposition of tough sanctions by western governments.
Those with investment banking operations and which were not present with retail branches — including Wall Street banks such as JPMorgan and SocGen’s French rival BNP Paribas — were quicker to cease operations and shift operations out of Russia.
SocGen’s Rosbank unit employs 12,000 people. It has previously said its Russian exposure amounted to €18.6bn, or 1.7 per cent of the group’s total commitments, with the bulk of that linked to Rosbank.
Additional reporting by Stephen Morris