SocGen Could Be Stripped Of Russia Arm In 'Extreme Scenario'

Societe Generale can see an "extreme scenario" where Russia strips the bank of its local operations, it said on Thursday, in one of the starkest warnings yet from a Western company about the potential fallout from the war in Ukraine.

The French bank, with one of the largest presences in Russia among foreign lenders, said it was working to reduce its risks in Russia, as European banks review their operations there amid escalating tit-for-tat sanctions with the West.

"The group has more than enough buffer to absorb the consequences of a potential extreme scenario, in which the group would be stripped of property rights to its banking assets in Russia," Societe Generale said.

Italy's biggest bank Intesa Sanpaolo, meanwhile, is conducting a strategic review of its presence in Russia following Moscow's invasion of Ukraine, a spokesperson said.

Bank shares have been battered in recent days amid fears of possible writedowns, lower revenue and weaker economies. Their stocks opened largely higher on Thursday.

Regulators are also preparing for a possible closure of the European arm of Russia's second-largest bank, VTB Bank, amid growing concerns about the impact of Western sanctions on the bank, according to two sources familiar with the matter.

Should regulators decide to close VTB in Europe, it would mark the second failure of a major Russian bank in the region as sanctions squeeze the country's lenders. Sberbank, Russia's largest bank, said earlier this week it was closing most of its European operations.

An index of leading European bank stocks opened 0.4% higher on Thursday, a second day of gains that made a small dent in steep losses earlier in the week.

Societe Generale has been one of the banks under pressure due to its presence in Russia. Its shares traded 2% higher on Thursday but are down around 20% since the start of the year.

"The group is conducting its business in Russia with the utmost caution and selectivity, while supporting its historical clients," it said.

Priorities are "to reduce its risks and preserve the liquidity of its subsidiary by maintaining a diversified collection of deposits," it added.

Many investors in recent days have been trying to shed their Russian assets.

Ratings agencies Fitch and Moody's have downgraded Russia by six notches to "junk" status, saying Western sanctions threw into doubt its ability to service debt and would weaken its economy.

Citigroup Inc could face billions of dollars of losses at its Russian business and is helping some of its 200 staff in Ukraine leave the country following Russia's invasion, executives said on Wednesday.

The bank's total exposure to Russia amounted to nearly $10 billion at the end of last year, it said on Monday, far higher than previously communicated.