LONDON/PARIS Citigroup (C.N) has agreed to buy part of French bank Societe Generale's (SOGN.PA) shipping loan portfolio for an undisclosed price as the U.S. bank takes advantage of slumping values in the shipping market.
"Societe Generale Corporate & Investment Banking and Citi have today confirmed an agreement for the sale of a portion of Societe Generale's shipping portfolio to Citi," the U.S. investment bank said in a statement dated on Thursday and sent on Friday.
European lenders, reeling from the euro zone crisis and more than three years of pain in the shipping market, are under growing pressure to cut exposure to risky and dollar-denominated assets such as ship and trade finance to meet tougher capital rules and shore up reserves.
SocGen declined to comment further than a joint statement when contacted on Friday. Citi officials could not be reached for further comment.
"This is a very strategic move for Citi that adds value to SocGen and also shows that despite the weakness of the (shipping) industry, it is still on the radar of major international banks," said Basil Karatzas, chief executive of Karatzas Marine Advisors & Co, which is active on the ship brokerage and bank advisory side.
A source close to the matter said the deal concerned a significant slice of SocGen's loan book, without giving more details.
A shipping industry source said SocGen had offered its whole portfolio for sale in January and that it sold a third of the book to Citi.
"Citi is looking to increase their shipping exposure in the market, and it is easier to acquire loans rather than originate them from scratch," the source said.
"Citi's funding costs are in dollars, which gave them an edge," he said. Shipping loans are mainly dollar-denominated.
CITI REMAINS ACTIVE
The statement said the two banks in the transfer of the loan book would "make the transition as timely and efficient as possible for the borrowers".
Many shipping companies have lost money due to a glut of vessels caused by an over ordering of ships when times were good, and a few have defaulted on their debts.
SocGen said in January it aimed to exit or cut its property, shipping and aircraft financing activities.
Citi told Reuters in November, however. it remained active in the ship finance market.
"Citi does seem to be in a counter-cyclical expansionary mode in shipping," another shipping industry source said.
One Paris-based banker said SocGen's loan book was connected to its export-credit activities and that the sale indicated it was probably healthy.
"Globally the portfolios that are being shopped around are of good quality, aside from a couple of lame ducks," the banker said.
BNP Paribas (BNPP.PA), SocGen's bigger French rival, also aims to exit or reduce non-core activities such as shipping. Similar moves are being examined by smaller French rival Natixis (CNAT.PA), bank memos showed.
(Editing by Jane Baird)