Posted Feb 28 2022 at 07:38 PMUpdated Feb 28. 2022 at 19:48
The atmosphere is becoming more and more serious for the European banks present in Russia. “We speak every hour with the establishments”, explains a source close to Bercy. In France, Societe Generale is the most exposed, via its subsidiary Rosbank. In the worst-case scenario, if the subsidiary were to be totally depreciated, the group could take a shock of 2.7 billion euros.
The Banque de la Défense again stepped up to the plate on Monday to show its calm in the face of the crisis. The group “is closely monitoring the situation at all levels of the organization”, he said, admitting that the context was becoming “more and more complicated”. Investors are already anticipating serious difficulties in Russia, Societe Generale’s share price falling by nearly 11% on Monday, and by more than 22% in one month. Less exposed, BNP Paribas also suffered, falling 7.5% on Monday and 16.6% in one month.
An ever more likely scenario
Societe Generale’s economic exposure primarily includes Rosbank’s book value. At the end of 2021, the latter amounted to 3.2 billion euros, from which we must deduct one billion euros linked to exchange rate effects with the rouble, i.e. 2.2 billion. To this amount is added intra-group financing (a subordinated loan granted by the parent company to its subsidiary) of 500 million euros, the total exposure thus reaching 2.7 billion euros.
“It’s the equivalent of half a Kerviel,” grinds a good connoisseur, referring to the ex-trader whose fraud cost 4.9 billion euros in 2007. According to analysts at Credit Suisse, a full write-off would correspond to “only” 0.34% of the group’s core capital ratio (CET 1), which stands at 13.7%. Banque de la Défense generated record annual net income of 5.6 billion euros in 2021.
“Rosbank represents less than 2% of Societe Generale group’s exposure and net income for 2021”, adds the establishment. By way of comparison, BNP Paribas reports a residual net exposure to Russia and Ukraine of approximately 500 million euros.
It remains to be seen whether Societe Generale will actually reduce Rosbank’s valuation to zero, a very extreme scenario last month. “I think they have to think about doing a full or partial ‘write off’ of their assets in their accounts,” said an investment banker. “All scenarios are on the table to assess our risks,” slips an internal source.
In a first hypothesis, one can imagine Russia reacting, not only to the avalanche of financial sanctions to which it is subject, but also to the possible resolution of the European subsidiary of Sberbank. The latter is considered since Monday as “on the verge of bankruptcy” by the European Central Bank (ECB). “This could prompt reprisals from the Russian authorities, for example in the form of nationalization of the Russian subsidiaries of European banks”, estimates Jérôme Legras, director of research at Axiom AI.
In a second scenario, Rosbank could simply suffer from the economic earthquake that Western sanctions are expected to cause. And in such a case, because of these same sanctions, it is hard to imagine the parent company recapitalizing or flying to the aid of its Russian entity. Which could expose him to sanctions from the West.