A Tale of 2 Generals in Russia

If imitation is the sincerest form of flattery, perhaps the French like us more than we thought.

Nearly one year to the day after America's General Electric (NYSE: GE  ) traveled east to buy itself a Russian bank, France's Societe Generale (OTC BB: SCGLY) has done the same -- almost down to the letter. On August 11, 2004, GE Consumer Financeannounced that it had anted up $100 millionto acquire minibank DeltaBank from Russian private equity firm Delta Capital Management.

That was last year's news. This year, on Friday to be precise, Societe Generale revisited the source of GE's buy, Delta Capital Management, and returned with a Russian bankinggem of its own: DeltaCredit. Once again, the asking price was $100 million. Once again, a Western banker paid up willingly (paying 2.5 times book value), and counted itself lucky to get a piece of Russia's rapidly growing loan market.

In the GE/DeltaBank deal, it was a case of GE buying a leading Russian credit card issuer (with 100,000 customers at the time). The Societe Generale/DeltaCredit deal, in contrast, will focus on Russia's nascent home mortgage market -- one that has been growing rapidly over the last 10 years, but still amounted to less than $1 billion per year in loan value. Societe Generale sees this market continuing to grow, by as much as 30-fold over the next five years.

With its latest buy, France's No. 2 bank should assure itself a big chunk of that market. According to DeltaCredit itself, the company controls a better than 20% market share in home mortgages, and is the leading private bank in this sphere. The only banks that do more home mortgages in Russia are, in order, state-owned Sberbank and state-controlled Vneshtorgbank.

Even so, Societe Generale can't afford to rest on its newly acquired laurels. As GE advised last year, the American company's DeltaBank subsidiary intends to aggressively expand its business not only in the credit card and retail deposit arenas, but in mortgages as well. So we could well see these two generals -- Societe and Electric -- duking it out for control of the Russian mortgage market. That the two are siblings born of the same private equity fund makes this a story almost worthy of Tolstoy.

For more Foolish news and views on Russian investing, read:

Fool contributor Rich Smith owns no shares in any company mentioned in this article.


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