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CEO of SocGen Russia unit held over suspected kickbacks

The chief executive of Societe Generale's ( id="symbol_SOGN.PA_0">SOGN.PA) Russian unit was detained on Wednesday on suspicion of taking bribes, dealing a blow to one of the few foreign banks that has dared to challenge Russia's dominant state banks.

The investigation into Rosbank Chief Executive Vladimir Golubkov in Moscow follows promises by President Vladimir Putin to crack down on corruption in business and public life as well as to defend national economic interests.

It could also alarm international companies in Russia that are wary of the weak rule of law and the state's ability to step in against businesses or individuals that fall out of favor.

Despite announcing cost cuts when it published results last week, the French bank reaffirmed its commitment to Russia, a market it entered at high cost in the past decade that has been abandoned by some Western banks.

Those growth plans could now be at risk after Golubkov's detention on suspicion of illegally accepting a six-figure dollar sum in cash and soliciting a bribe 10 times larger.

The Rosbank CEO was held "on suspicion of receiving illegal monetary compensation" totaling 5 million roubles ($160,000), the Russian Interior Ministry said in a statement.

Golubkov was also suspected of demanding a bribe of $1.5 million from a businessman to grant a loan, the statement said. A senior Rosbank manager, Tamara Polyanitsyna, was held on suspicion of being an intermediary meant to receive the cash.

Television footage released by the ministry showed uniformed offers elbowing their way into Rosbank's headquarters, then cut to a scene of Golubkov standing in his office with several wads of 5,000 rouble ($150) notes piled on the desk in front of him.

Golubkov, wearing a light grey suit, looked into the camera but did not speak.

Rosbank said it was cooperating with authorities in the investigation into Golubkov and said first deputy CEO Igor Antonov was taking charge of operations, which were unaffected by the developments. SocGen had no further comment.

Such payments are not unusual in the Russian banking system and usually go undetected. Cases that come to light have been known to result from stings instigated by business rivals with connections in law enforcement.

"It doesn't look pretty," said one Russian banking analyst who spoke on condition of anonymity. "But everyone knows this is something that is specific to Russia, that it happens - just not at this level."

Another senior Russian banker, who neither knows Golubkov personally nor was aware of the details of the case, said: "Somebody could have set up the guy."

Western bankers say it is sometimes difficult to prevent their staff from accepting loan 'facilitation' payments seen as vital for cementing relationships in a country where the courts offer limited recourse for resolving disputes.

Russia has suffered tens of billions of dollars in capital flight and its economy has been weighed down by weak investment as large foreign players, such as British oil major BP ( id="symbol_BP.L_1">BP.L), have liquidated investments after coming under pressure from officials, competitors or local partners.

DOUBLING DOWN

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SocGen has paid an estimated 4 billion euros ($5.2 billion) to build up an estimated 82 percent stake in Rosbank, but despite creating Russia's ninth-largest commercial bank the franchise has failed to turn consistent profits.

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In an interview with Reuters published on May 7, Golubkov said Rosbank had growth potential: "Russia is Societe Generale's second most important market and a priority development target.

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Golubkov has been CEO at Rosbank since 2008. The lender was previously the bank of Russian metals billionaire Vladimir Potanin, now the CEO of Arctic miner Norilsk Nickel ( id="symbol_GMKN.MM_2">GMKN.MM), and tycoon-turned-politician Mikhail Prokhorov.

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SocGen has struggled to impose effective control over Rosbank and integrate its other Russian operations, with a high cost base and below-par loans growth last year driving the bank to a small loss.

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Hopes had been high that an overhauled management team, with Golubkov backed up by deputy CEOs Francois Bloch and Ilya Polyakov, would be able to turn the page.

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That outcome has eluded other Western banks including Barclays ( id="symbol_BARC.L_3">BARC.L) and HSBC ( id="symbol_HSBA.L_4">HSBA.L), which have pulled out of Russia after struggling to compete with Sberbank ( id="symbol_SBER.MM_5">SBER.MM) and VTB ( id="symbol_VTBR.MM_6">VTBR.MM), whose state backing guarantees cheaper funding.

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"SocGen's investment in Rosbank has been problematic since the beginning, in terms of price paid, profitability and governance concerns ... These new political or regulatory issues are not going to help," said Yannick Naud, portfolio manager at Glendevon King Asset Management.

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($1 = 31.3252 Russian roubles)

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($1 = 0.7705 euros)

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(Additional reporting by Lionel Laurent; Writing by Douglas Busvine, Editing by Timothy Heritage and David Cowell)

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