French bank Société Générale has cut ties with Russia, selling off its Rosbank operation to a firm with oligarch connections.
In leaving the country, Société Générale will lose €3.1 billion, or $3.3 billion, in the sale to Interros Capital, which is part of the business empire of Norilsk Nickel head Vladimir Potanin. The bank said it would write off €2 billion on Rosbank’s book value; the rest would be tied to the reversal of ruble conversion reserves.
Believed to be the second wealthiest person in Russia, Potanin was sanctioned by Canada following the country’s war of aggression against Ukraine. Forbes Magazine has reported that he is worth $27 billion, with assets including a metals production company and ski resort. The United States and European Union have not included Potanin in their sanctioning of Russia’s political and financial elite.
Société Générale shares rallied 7% with the announcement. "It shows what discount the market was pricing in for potential Russian risks. This draws a line in the sand," Morningstar analyst Johann Scholtz told Reuters. "(The bank) essentially gives the business away for free."
The sale is expected to diminish the bank’s Tier 1 capital ratio, the chief measure of financial strength, by 20 basis points.
Société Générale is the first major Western bank to sever ties with Russia and the news of the sale is "a welcome surprise for the market, given the small capital impact and the reduction of future risk, as well as confirmation of dividend policy," Citibank analysts told Reuters.
The terms of the deal, though, left some observers unsettled. "It's a bit distressing that ultimately this is an enormous gift to one of the wealthiest oligarchs," Jerome Legras, Head of Research at Axiom Alternative Investments, told Reuters.
Many foreign companies have closed operations in Russia in the wake of the invasion but haven’t arranged for total breaks from the country. Société Générale’s exit may inspire others to act in kind, Legras said. Currently, Citi is attempting to offload a consumer banking franchise, and Italy's UniCredit and Austria's Raiffeisen are assessing their future business given the geopolitical climate.
