Societe Generale buys Rosbank for a mind-boggling premium

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MOSCOW. (Anatoly Gorev, financial analyst, for RIA Novosti) - The French financial group Societe Generale has shocked the Russian banking community by acquiring a controlling stake in Rosbank.

Societe Generale (SG) is one of the largest banks in the euro zone, while Rosbank is one of the largest privately owned banks in Russia, operating about 650 outlets, including 67 branches, in the majority of the country's regions.

The deal entailed a record-high premium, with a price-to-equity ratio of 5.9. Market analysts do not think SG paid too much, as retail banking in Russia is a veritable pot of gold.

It was not the acquisition itself that was surprising, because SG announced its intention to buy a controlling stake in Rosbank in 2006, and later that year bought two 10% stakes minus one share and an option to buy another 30% plus two shares by the end of 2008.

The surprising fact is that SG has decided to go through with the transaction ahead of the deadline and paid $2.33 billion for a controlling stake, the highest premium on the Russian market so far.

Very few banks in the Commonwealth of Independent States have been sold at such a high premium, but never before in Russia. The biggest deals on the Russian market had been the acquisition of Orgresbank by Finland's Nordea in November last year (an 85.7% stake for $313.7 million, ratio 3.8) and of Absolut Bank by Belgium's KBC Group in April 2007 (a 95% stake for $983 million, ratio 3.7).

Russian banks were not sold at a high premium for understandable reasons, as ratios of 5 or 6 are granted only for the acquisition of banks that control at least 5%-10% of the local banking services market. There were many such banks in Eastern Europe, but very few in Russia.

Moreover, the banks which foreign financial and credit groups would pay dearly for are not for sale. State-run savings bank Sberbank, which controls about 50% of the retail banking services market, feels quite well under the government's wing, and the same is true about VTB and Gazprombank.

Several private banks (Alfa and MDM) are considering holding an IPO, rather than a sale of assets to a major strategic investor.

This, and the rapid development of the banking services market in Russia, explains the generous offer of Societe Generale, which has decided to spend part of its funds (its net profit in 2006 was 5.2 billion euros and the assets it is managing are worth 422 billion euros) on the acquisition of Rosbank. Although the latter controls a much smaller part of the Russian retail market than Sberbank, it has a number of other advantages.

First, it has a large network of outlets (650), which foreign strategic partners value above everything else. Second, Rosbank posted record-high growth in the lending and private-deposits segment in the past two or three years. And lastly, SG probably wanted to push ahead of its main rival on the French market, BNP Paribas.

In 2004, BNP Paribas almost bought the Russian Standard bank in a deal that would have set a new record in Russian banking history. The French group offered a price that was seven times greater than the bank's capital. But the parties failed to agree, and BNP Paribas opted for another way to get a foothold on the Russian market, through its 100% retail subsidiary Cetelem.

Societe Generale has several Russian assets. One of them is Rusfinance Bank, set up through a merger of Capital Credit Partnership bank, the Rusfinance company and Rusfinance Bank (earlier Promek Bank, Samara). The other is Rosbank, in which the French group will soon acquire a controlling stake, given the approval of the Federal Anti-Monopoly Service.

There are no grounds to assume that the anti-monopoly watchdog will stop the deal.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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