* VTB selling out of Rosbank to majority owner SocGen
* SocGen increases stake by 10 pct to 92.4 pct
* SocGen exchanges real estate assets for stake
By Megan Davies and Lionel Laurent
MOSCOW/PARIS, Oct 7 France's Societe Generale
is raising its stake in Russia's Rosbank to above 90
percent, betting it can turn around the troubled Russian banking
unit even as rivals have quit a country where they could not
While players such as Citi and Austria's Raiffeisen
thrive, many have found post-Soviet Russia too hard to
crack: rife with credit, legal and corruption risks, and
dominated by state giants Sberbank and VTB.
SocGen, which bought into Rosbank in 2006, spent billions of
dollars to fix the underperforming Russian bank. Yet it was
shaken by scandal in May, when it fired Rosbank CEO Vladimir
Golubkov after he was charged with bribery.
Under Monday's deal, SocGen is buying 10 percent more of
Rosbank from Russia's second-largest bank, state-controlled VTB,
taking its stake in the unit to 92.4 percent.
The deal gives SocGen strategic scope to either realise its
declared goal of achieving sustainable scale and profitability
in Russia, or stage a cleaner exit should it fall short.
"(For SocGen), the 10 percent increase may be helpful in
selling the whole (of Rosbank) to someone else," said Andrey
Klapko, analyst at Gazprombank.
"For now, it (would be) hard to find an appropriate buyer.
The trend is to go out of Eastern European markets and cut down
on investments in these regions."
SocGen said it had struck the deal "to strengthen its
position" in Rosbank.
VTB, which bought into Rosbank in 2010, will in exchange
receive shares in Russian companies, loans to Russian companies
and Russian real estate assets, the banks said, confirming a
Reuters report on Sunday.
"VTB gets rid of an illiquid non-core asset," that it has
held since 2010, said Jason Hurwitz, analyst at Alfa Bank.
Hurwitz said VTB probably had stronger negotiating power
than SocGen on the deal and was probably getting assets that are
more favorable in terms of valuation, liquidity, or both.
Jean-Pierre Lambert, analyst at Keefe, Bruyette & Woods,
estimated the value of the stake at around 200 million euros but
said he expects a 50 million euros negative pre-tax impact on
SocGen from the deal.
Lambert said he is assuming a "20 percent haircut on the
assets sold by SocGen."
A source close to Rosbank said that it had already begun to
sell its real-estate holdings and shareholdings and selling more
of these assets to VTB was a continuation of the strategy of
slimming down its balance sheet.
VTB said in May that the stake was not strategic and that it
was in talks on a sale.
DOUBLE OR QUITS
Russia and Eastern Europe are key planks of SocGen Chief
Executive Frederic Oudea's recovery strategy, which aims to
offset stagnating domestic retail revenues and volatile trading
profits with exposure to dynamic economies beyond the euro zone.
Although this has yet to fully bear fruit, Oudea pledged in
June that its Russia operations would deliver a sustainable
return on equity of over 15 percent by 2015 as the cost-cutting
efforts of the past few years begin to take effect.
By contrast, SocGen is targeting an overall group return on
equity of 10 percent in the same time-frame. SocGen's shares
trade at a discount relative to French and European peers,
reflecting market scepticism over Oudea's strategic vision.
Golubkov was replaced by his first deputy, Igor Antonov, who
remains acting chief executive until a replacement can be found.
The Russia boss has a long way to go to meet profit hopes
for the year. SocGen reported 29 million euros profit for the
first half for Rosbank and its Russian mortgage and
consumer-finance arms, versus a 291 million-euro loss in the
year-ago period, hit by goodwill writedowns.
Analysts have said they want to see annual profits of 120
million euros to prove the unit is on track.
"It is not so obvious (why SocGen would) increase their
already controlling stake," said Gazprombank's Klapko. "Probably
they are providing some assets they do not need in exchange."
While Western banks flocked to Russia after the 1991 Soviet
collapse, this no longer fits President Vladimir Putin's vision
for a country which was badly exposed to the Wall Street crash
almost two decades later.
Large state-controlled banks are increasingly competitive,
enjoying a funding advantage thanks to the backing of a
sovereign with low debts, and they have reinforced management
with foreign talent.
A report by Moody's on Monday said over the coming 12-18
months, operating conditions for Russian banks will be
challenging partly due to slower economic growth.
Banking sources familiar with SocGen's strategy have told
Reuters that buying out VTB was inevitable given its desire to
take full control of what bankers and former employees described
as a divided and difficult-to-manage entity. VTB's presence on
Rosbank's board was also a hindrance, they said.
Metals tycoon Vladimir Potanin, who with former partner
Mikhail Prokhorov used to own Rosbank, holds the remainder of
the bank with other shareholders. Potanin is now CEO of mining
company Norilsk Nickel.