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SocGen: undaunted by cost of market share

Société Générale paid Eu1.2 billion for 60% of Komercni Banka as it moved into the Czech Republic in June. The move was criticized as too risky. Now, it appears that it was right on target.

When in June the Czech government chose Société Générale as the strategic investor for the country's second-largest bank, the critics began to scoff. The sceptics - many of them analysts from the French bank's rivals - slammed SocGen's decision to pay e1.2 billion ($1.1 billion) for 60% of Prague-based Komercni Banka as overpriced. After all, they said, Komercni had a history of bad loans on the corporate side and only a limited retail business. Despite a generous government bailout, SocGen had been stung, they argued.

Indeed foreign acquirers have every reason to be wary of potential bad debt problems at banks in emerging markets, even in the more developed EU accession candidate countries. As well as the legacy problem assets hanging over from the days of policy lending some banks in the region have fallen prey to other, more recent bad investment decisions.

For example, during the recent boom in issuance of collateralized debt obligations by European and American banks - sometimes clearing up their own balance sheets, sometimes creating synthetic diversified credit portfolios - one of the difficulties for originators has been in offloading the riskiest first-loss tranches, often called the equity tranches.

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