MOSCOW. (Anatoly Gorev for RIA Novosti) - The scandal surrounding the largest French financial and credit group Societe Generale is mounting.
The swindle by the bank's junior trader Gerome Kerviel has already been called the biggest fraud during the entire history of world financial markets.
According to the investigators, Kerviel stole almost five billion Euros from the bank. It is not even possible to estimate what damage he has done to the bank's image.
Probably, the banking market in Russia would not have reacted to the scandal if the French group did not operate quite successfully in Russia through its subsidiaries - Bank Societe Generale-Vostok (BSGV) and Rusfinansbank. Until recently, Societe Generale was one of the most active foreign buyers on the market of bank mergers and acquisitions. In 2006, the French group purchased a 20% stake in Rosbank in two stages, and was planning to buy another 30% of its shares before 2007 ended.
Societe Generale's interest in Rosbank was quite natural. It wanted to have the controlling stake in a key retail player. Rosbank's huge network of branches is probably second only to that of Sberbank (Russia's main savings bank). Societe Generale representatives could not conceal their pride, causing their rivals to be jealous. The group was going to buy a bank, which is considered a leader in one of the most tempting segments of the market - consumer credits, auto loans and mortgages.
But in the last few days, it has been rumored that the deal between Societe Generale and Rosbank may not go through. Experts are quoting the former's far from prosperous position as one of the reasons. The group had to acknowledge the loss of five billion Euros and write off another two billion Euros, presumably because of bad mortgage loans. Considering the ongoing crisis in the United States and the liquidity crunch, it may lose even more in the mid-term perspective. But even seven billion Euros is a big loss, particularly for a group that symbolized stability and success during the last few years.
Needless to say, nobody doubts that Societe Generale, even in the current unfavorable situation, has enough funds to close a $1.7 billion deal with Rosbank. This is one of the largest recent transactions in the Russian market, but this sum is not critical for the French bank. However, the French group may not be interested in purchasing 30% of Rosbank stock now that it is bogged down in its own problems. First of all, it has to restore its image and make up for the losses, rather than reach out to developing markets.
A possible failure of the deal will adversely affect not only Societe Generale and Rosbank, but also the Russian banking market as a whole. The deal was considered very important in many respects and entailed a record high premium. Experts from foreign banks and international consulting groups emphasized that finalizing the deal would enhance the appeal of Russian bank assets in the eyes of potential "strategists."
This is especially important now that international investors are becoming less and less active in developing markets because of liquidity problems that may affect any bank or investment company. The recent scandal has shown that even a financial giant like Societe Generale is not protected against them.
Anatoly Gorev is a financial analyst.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.