Banks betting on Russia face a new test of their appetite


Western banks are accustomed to Russia’s political turmoil. The Societe Generale, first founded in the country 150 years ago, was forced to rest for 56 years after the 1917 Bolshevik Revolution.

Since returning, French lenders have overcome the end of communism, Russia’s 1998 sovereign default, and the 2014 merger of the Crimean Peninsula.

Societe Generale was one of the banks notified by the European Central Bank earlier this month, as Russian troops are now rallying on the Ukrainian border. The Financial Times announced this week that the ECB has warned lenders with Russian exposure to prepare to impose international sanctions on the country in the event of Ukraine’s invasion.

Alongside Societe Generale, Austria’s Raiffeisen Bank and Italy’s Unicredit are one of the most important European banks. According to data compiled by JP Morgan, this trio accounts for 3.7% of the assets of the Russian banking system.

Their presence is in contrast to some of the largest Wall Street banks, including JP Morgan and Bank of America. Significant reduction Their exposure to Russia after the invasion of Crimea.

As a result, the Kremlin “Fortress Russia” strategy To reduce reliance on foreign funding. Corporate lending from foreign lenders fell from $ 150 billion in March 2014 to $ 80 billion last year, according to the Central Bank of Russia.

However, cross-border relationships are still important. According to data from the Bank for International Settlements, international banks, including Russian subsidiaries, I have a debt of $ 121 billion Depends on the substance of Russia. Lenders in Italy, France and Austria each make the most claims.

The Russian market is still attractive to the remaining lenders, including the Hungarian OTP Bank. Retail banking margins are attractive, but you can pay favorable transaction, financing, and advisory fees, especially from the country’s energy and natural resources sectors.

Indeed, UniCredit CEO Andrea Olsel said on Friday that Italian lenders I was considering an acquisition Before the heightened political tensions over Ukraine, the government-owned Russian lender Otkritie

UniCredit, Italy’s second largest bank, entered the Russian market in 2005 through an agreement to acquire the Bank Austria, which already had a subsidiary headquartered in Moscow.

The information requested by the ECB included how banks were analyzing Russia’s exposure and emergency response plans prepared during sanctions.

Several European banks operating in Russia said they were working on preparations before the warning from the ECB.

“We don’t have to ask regulators how they manage the risks of taking action,” the CEO of a European bank told FT.

“If you follow the news, you’ll obviously see your exposure. Whenever there are geopolitical tensions and economic uncertainties, you always review your portfolio.”

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An executive at a European bank with a major Russian subsidiary said it had stepped up its preparations in the past three weeks and raised its liquidity level significantly in the hope that uneasy clients would withdraw money. They also said that currency hedging against Russian exposure has tripled.

After Russia was hit hard in 2014 when it faced penalties on the Crimean Peninsula, banks inserted clauses in all domestic loan agreements and sanctioned customers could no longer withdraw additional credit. , I had to repay an existing loan. The executive said. Banks were also able to withhold further reserves in preparation for potential losses from sanctions.

Other banks contacted by the FT said they were in “wait mode” as efforts continued to relieve tensions through diplomacy.

One of the US banks that stuck to Russia is Citigroup. Citigroup held $ 5.5 billion in loans, investment securities and other assets related to Russia at the end of the third quarter of 2021. Exchange Committee. It accounted for 0.3 percent of total assets.

Citigroup CEO Jane Fraser said in April last year that she was selling its retail business in Russia like the other 12 countries. Citi declined to comment.

Societe Generale said it made its first investment in a Russian company in 1872, but the bank’s € 2.6 billion exposure to the country is now primarily through Rosbank’s subsidiaries. He bought 20% of Rosbank in 2006 and took control of the majority during the financial crisis two years later.

JPMorgan estimates that this business accounts for 3% of SocGen’s group revenue and 4% of pre-tax profit.

City analyst Azura Guelfi said:

Societe Generale said, “Rosbank operates its business in normal mode within the existing surveillance framework,” “mainly operates locally,” and “banks are confident in their ability to secure activity.” Has reduced the risk of Russian exposure. ” For our clients. “

In addition to the investment banking services offered at the Societe Generale group level, Rosbank operates a domestic insurance, car rental, leasing, factoring and credit sector.

Reifaisen has a direct exposure to Russia similar to Societe Generale, but the country’s importance to the overall interests of Austrian banks has become very high. Last year, the business in Russia accounted for 19% of revenue and 35% of the group’s pre-tax profit.

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In the worst sanctions scenario modeled by JP Morgan analysts, Raiffeisen will be hit hardest by a 99 basis point drop in Tier 1 capital of common stock, a measure of financial strength. It is estimated that SocGen will be the second most affected foreign bank at 33bp.

Vienna lenders have long served as a conduit between Russia and Western Europe and have long played a leading role in banking operations in Central and Eastern Europe.

However, Raiffeisen only entered the Russian market directly in 2006 with the acquisition of Impexbank. The deal was part of the widespread expansion of Reifisen in Central and Eastern Europe over the last three decades.

Over the past year, we have concentrated our Russian and Ukrainian subsidiaries in large cities and closed branch offices in rural and low-profit regions.

Raiffeisen declined to comment.

Additional Report by Gary Silberman in New York

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