Société Générale SA's sale of Russian subsidiary Rosbank at a loss of around €3.1 billion disposes of an asset that had been struggling to regain its former strength after a turbulent decade.
SocGen bought a stake in Rosbank in 2006 before merging it with its other Russian operations in 2010. Its early years as part of SocGen were marked by strong growth and profitability, heights which it has struggled to regain since plummeting energy prices and the fallout from Russia's annexation of Crimea in 2014 hurt its performance, S&P Global Market Intelligence data shows.
Rosbank, which SocGen said it would off-load amid pressure for Western companies to cut ties with Russia after it invaded Ukraine, had a return on average equity of 8.6% in 2020, after peaks of 11.3% in 2013 before the turmoil of the following year, and 17.9% in 2007 before the global financial crisis. In 2014, 2015 and 2016, Rosbank's ROAE was lower than the overall SocGen group's.
One of SocGen's key justifications for exposing itself to the risk of operating in Russia was the higher returns that such a market could offer, Johann Scholtz, bank equity analyst at U.S. financial services firm Morningstar, said in an interview. In normal times and with currency stability, Russia could be a profitable market, Scholtz said.
SocGen did not respond to a request for comment.
Rosbank's lower profitability has come off the back of reduced operating income since its 2013 peak when it generated €1.48 billion. The Russian subsidiary's portion of overall group operating income was 3.8% in 2020, down from 6.6% in 2013.
Rosbank's significance to the wider SocGen group has also diminished in recent years, due to both its smaller balance sheet and the wider group's growth. Its total assets peaked at €19.82 billion in 2012 and stood at €15.07 billion — or 23.9% lower — in 2020. SocGen's total assets grew by 17.1% during the same period.
The sale of Rosbank, along with SocGen's insurance activities in Russia, will reduce its capital ratio. The common equity Tier 1 ratio will fall by 20 basis points as of 2021-end, compared to the reported 2021-end figure of 13.71%. SocGen said this latter figure is 470 basis points above the minimum regulatory requirement.
