Dosvedanya Russia: French Banking Giant To Exit Russia By Selling Its Stake To Kremlin Confidant

Dosvedanya Russia: French Banking Giant To Exit Russia By Selling Its Stake To Kremlin Confidant

by Swarajya Staff - Monday, April 11, 2022 06:29 PM IST
Dosvedanya Russia: French Banking Giant To Exit Russia By Selling Its Stake To Kremlin ConfidantSocGen

Western corporate businesses continue to depart from Russia. Societe Generale, the French Banking giant has now announced that it will leave Russia.

The company's banking and insurance activities in the country will come to an end immediately. Society Generale, also known as SocGen, has announced that it will sell its entire stake in Russia's Rosbank too.

A statement released by SocGen reads:

"Societe Generale ceases its banking and insurance activities in Russia and announces the signing of a sale and purchase agreement to sell its entire stake in Rosbank and the Group’s Russian insurance subsidiaries to Interros Capital, the previous shareholder of Rosbank. With this agreement, concluded after several weeks of intensive work, the Group would exit in an effective and orderly manner from Russia, ensuring continuity for its employees and clients.”

“This contemplated transaction, which remains subject to the approval of the relevant regulatory and anti-trust authorities, will be conducted in compliance with the legal and regulatory obligations in force. The closing of this operation should occur in the coming weeks", it continues.

It is pertinent to remember that SocGen once advocated stronger economic integration with Russia. "We look at the long-term and Russia is part of Europe, it is in Europe's 'common interest' to develop more ties between Europe and Russia" - was SocGen's position once upon a time.

Amongst all the western firms leaving Russia, the French firms have been most reluctant to leave.

Source: Yale School of Management
Source: Yale School of Management

One of the reasons behind this initial reluctance of French firms is the fact that they are the biggest foreign employers in Russia.

According to data from the French economic ministry, French firms employ more than 160,000 people across various sectors from energy to food industry.

On average, French businesses in Russia are more labour intensive, compared to German and American businesses in Russia.

Ukrainian President Zelenskyy has been critical of French businesses. Whilst addressing the French parliament he said, "Renault, Auchan (supermarket chain) and Leroy Merlin have to stop being the sponsors of the Russian war machine – values are more important than profits."

So perhaps the appeal of Ukraine's president melted SocGen's heart. After all, financial firms are known for their conscience, once you appeal to it, they really tend do straighten up.

Puns aside, SocGen has stated that exiting from Russia is going to cost them $3.4 billions.

The multi billion dollar exodus from Russia will most likely keep continuing. It will hurt the common people of Russia, consolidate more power in the hands of Russia's elite.

SocGen is selling its stake in Rosbank to a Russian oligarch Vladimir Potanin, who is a close confidant of Vladimir Putin.

Dosvedanya Russia: French Banking Giant To Exit Russia By Selling Its Stake To Kremlin Confidant

Potanin is named in sanctions list of Canada. According to some estimates, he is the most wealthy man in Russia. He isn't a traditional businessman or industrialist. In other words, he has for a significant time been part of the Russian state.

He served in the Soviet Union's foreign trade ministry. After the fall of the Soviet Union, he served as the first deputy Prime Minister of Russia. He was the mastermind of privatisations of former state-owned businesses. In the process he himself 'bought' several of these large businesses, including a stake in mining giant NorNickel.

The 'loan for shares' programme was his brainchild. Under this programme, wealthy Russians and banks loaned money to Russian government in exchange for equity in Russia's natural resource companies.

The government often failed to to repay these loans. As a result, many of these natural resource companies ended up in the hand of these businessmen and thus began the emergence of Oligarchy in Russia.

In recent days, Potanin has advised Russia against nationalising the assets of western companies who are leaving Russia. He cautioned that such a move would shatter investor confidence for decades.

"It (nationalising assets of western companies exiting Russia) would take us back a hundred years, to 1917, and the consequences of such a step — global distrust of Russia on the part of investors — we would experience for many decades. Secondly, the decision of many companies to suspend operations in Russia is, I would say, somewhat emotional in nature and may have been taken as a result of unprecedented pressure on them from public opinion abroad. So most likely they will come back. And personally, I would keep such an opportunity for them", he wrote.

It is likely that he has some sway on policymaking in Russia. Interestingly, the firm in which he has a stake, NorNickel, has escaped punishing sanctions. NorNickel's primary products have escaped sanctions as well. One of the reason behind that might be the importance of business that NorNickel does. NorNickel is the world's biggest producer of high-grade nickel along with being a major producer of palladium and copper.

SocGen is the one of the first major bank to exit Russia. SocGen's rivals like Italy’s UniCredit and Austria’s Raffeisen are still considering their futures in Russia. If they do decide to follow SocGen's path, it would be worth noting who they sell to.

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