Frankfurt In the office building at Rüsterstraße 7-9 in Frankfurt’s Westend district, nothing is as it used to be. The lettering of the company based there is covered with metal plates. The entrance hall is deserted. Employees of a security company monitor access. Only a small sign under the bell reveals who is based here: VTB Bank Europe with its German branch VTB Direktbank.
The European subsidiary of the second largest Russian bank VTB has been in a state of emergency since the Russian attack on Ukraine a good month ago. Employees worry about their jobs and their safety, customers about their money.
There is great uncertainty as to how the institute will continue. Four out of five board members have left the bank in the past week, as several people familiar with the topic told the Handelsblatt. CEO Nicholas Hutt and his colleague Zac Fortune are British citizens and are no longer allowed to work for VTB because of the sanctions.
Oxana Kozliouk and Oleg Osipenko are both Ukrainian citizens and no longer wanted to work for the bank due to the Russian invasion. The only remaining board member is CFO Miro Zadro. VTB and VTB Europe declined to comment.
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In the past few days, the Handelsblatt has spoken to numerous people who have deep insights into VTB Europe. They paint a picture of an institute that was on the brink of collapse after the outbreak of war, but has since found its footing again. The financial supervisory authority no longer sees any acute danger that the bank will collapse.
Employees are insulted, buildings smeared
After the outbreak of war on February 24, the employees at VTB Europe’s headquarters are shocked by the events that are taking place in Ukraine, a good 1,600 kilometers away. Hardly anyone in the bank expected it to come to this.
Days of uncertainty are now beginning for VTB Europe. Europe and the US pass sanctions against Russia, mostly targeting the financial sector. Several Russian financial institutions are to be excluded from the financial news service Swift – including the parent company VTB.
In Europe, the institute has collected a lot of money, especially from German private investors. At the end of September, customer deposits amounted to 4.4 billion euros. In the meantime, however, this sum has fallen significantly.
After the outbreak of war, many customers emptied their accounts because they feared that VTB Europe would go bankrupt because of the sanctions. The European subsidiary of the largest Russian money house Sberbank closed the European Central Bank at the end of February.
VTB Europe is spared such a fate. After a special test on Sunday, February 27th, the financial supervisory authority decides that VTB Europe can continue. However, the institute is prohibited from new business.
However, the employees cannot be happy about the continued existence of their bank for long, because hostilities are becoming more frequent. The headquarters of VTB Europe is smeared several times. Employees are insulted on the phone. The management then hired a security service and had the VTB lettering on the outside facade covered.
The European subsidiary of the second largest Russian bank was on the brink at the beginning of the Ukraine war, but has since stabilized.
(Photo: Reuters)
There is also great uncertainty on the customer side. At the German branch VTB Direktbank, there are so many inquiries that the institute is overwhelmed and turns off the customer phone at the beginning of March. “Due to the special situation, we are currently receiving so many inquiries that we can hardly keep up with answering all the telephone calls,” explains the bank. “Unfortunately, more and more callers are using the wrong tone of voice.”
Many customers are particularly frustrated because they cannot transfer money from VTB Europe to accounts at other banks. However, this is not due to VTB, but to the fact that other institutions no longer accept money from VTB for fear of violating sanctions.
Most German institutes now accept payments from VTB Europe, which, unlike the parent company VTB, was not excluded from Swift. According to financial circles, there are currently still problems with Deutsche Bank and its Postbank brand.
Deutsche Bank said that restrictions on payment transactions should be expected if Russian banks were involved. “As an international company, Deutsche Bank must also keep an eye on sanctions from the USA and Great Britain.”
VTB should be available by phone again soon
The financial regulator Bafin took a closer look at VTB Europe last year and found deficiencies. In October, the authority therefore sent an external company to the bank to monitor that the financial institution does more to prevent money laundering and terrorist financing.
According to insiders, after the outbreak of the Ukraine war, Bafin also ordered several auditors from the Bundesbank to the institute. They should closely monitor the situation of VTB Europe and ensure that no funds flow to the parent company in Russia. “VTB is currently probably the best monitored bank in Europe,” says a person familiar with the measures.
Bafin said it would take action at VTB Europe if the facts required it. “We closely support the bank and receive daily reports on the outflow of funds.”
>> Read here: Russian bank VTB is putting its European branch up for sale
However, the frequency of exchanges between the financial supervisory authority and the bank’s board of directors has meanwhile decreased, as the situation at VTB Europe is comparatively stable, several insiders said. However, the Bafin asked the bank to put its customer telephone back into operation as soon as possible.
At its core, VTB Europe is a solid bank, reports a person who knows the institute very well. “The bank only found itself in difficult waters because of political developments.” This led to an outflow of deposits, which has since slowed down. “The bank is shrinking, but in an orderly manner.”
One reason for this is the fact that many savers have deposited their money into fixed deposit accounts from which they cannot withdraw funds in the short term. On the other hand, the institute had relatively large capital and liquidity buffers at the beginning of the war.
Insiders praise Bafin’s “cautious approach”.
Many of those involved are of the opinion that Bafin is very close to VTB Europe and is acting prudently in this difficult situation. The German financial supervisory authority stands out from the ECB’s approach to the European subsidiary of Russia’s largest financial institution, Sberbank.
At the end of February, the ECB had classified Vienna-based Sberbank Europe and its subsidiaries in Croatia and Slovenia as “failing or likely to fail” and justified this with high outflows of funds. The bank was then closed and affected private customers were compensated by the deposit insurance.
VTB Europe wants to avoid such a scenario. Since it is not allowed to accept new deposits and corporate customer business with Russia will not be possible in the foreseeable future, insiders see two main options: The bank could reduce its deposits and its issued loans in unison, if possible, until sometime there is no business left. Or VTB could sell its European subsidiary to a new owner, under whom the institute would probably do new business again.
According to financial circles, VTB is currently trying to sell the European subsidiary – possibly also to save the equity of a good one billion euros, which would probably be gone if the subsidiary went bankrupt. However, it is uncertain whether a sale can succeed in view of the sanctions against VTB.
Collaboration: Yasmin Osman
More: “How do I get my money?” – Frustration among customers of the German subsidiary of VTB Bank