PARIS--French bank Societe Generale said on Monday it would quit Russia and 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.
Rosbank will rejoin the business empire of Potanin, the 61-year-old head of mining giant Norilsk Nickel, who has been sanctioned by Canada under Western moves against Russia's business and political elite over its invasion of Ukraine. He has not been sanctioned by the European Union or the United States.
While financial terms of the deal were not announced, SocGen said it would write off 3.1 billion euros, comprising a 2 billion-euro hit on Rosbank's book value and the rest linked to the reversal of rouble conversion reserves.
SocGen, the first major Western bank to announce its exit from Russia, had previously flagged the risk of a write-off on its 99% stake in Rosbank. Investors said its exit from Russia removed a lot of uncertainty. It pledged to stick to plans for a dividend and a 915 million-euro share buyback.
Morningstar analyst Johann Scholtz noted SocGen shares rallied 7% on the news, even though Russia only accounted for about 2% of SocGen's earnings. "It shows what discount the market was pricing in for potential Russian risks. This draws a line in the sand," he said.
SocGen "essentially gives the business away for free," Scholtz said, noting the book value writedown on Rosbank. "The only way they can do that is that if they get no material consideration," he added.
Interros agreed, however, to pay off Rosbank's subordinated debt, approximately 500 million euros.
Overall, SocGen said the exit would shave 20 basis points (bps) from its Tier 1 capital ratio - the core measure of a bank's financial strength - which stood at 13.7% at the end of 2021 or 470 bps above the minimum required. Citi analysts said 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."
But the sale to Potanin was not universally applauded. "It's a bit distressing that ultimately this is an enormous gift to one of the wealthiest oligarchs," said Jerome Legras, head of research at Axiom Alternative Investments.
France's finance ministry declined to comment when asked whether the government had a role in negotiations. It 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 shutter their Russian businesses. Orchestrating a complete break is, however, more difficult due to sanctions and political sensitivities.
