Frankfurt When Miro Zadro looks at his mobile phone at 6:45 a.m. on February 24, the entire display lights up green. “They invaded” is the first WhatsApp message read by the CFO of VTB Bank Europe. “We’ll probably not see each other anymore today,” Zadro tells his wife – and sets off for the office.
A struggle for survival begins for the European subsidiary of the second largest Russian financial institution, which is one of the most exciting stories in the German banking sector in 2022. Zadro faces the most difficult months of his professional life.
At the bank’s headquarters in Frankfurt’s Westend, the 44-year-old looked into numerous desperate faces that Thursday morning. “Everyone in the bank was shocked. Many people in the hallways had tears in their eyes. Nobody could believe what happened,” says Zadro today. “About a third of our employees are Russian citizens, but none of them were pro-war.” In some offices, Ukrainians and Russians work table to table on a daily basis.
The bewilderment about the war is mixed with existential fear. Because numerous customers start straight away with emptying their accounts at VTB Europe. “By 10 a.m., a two-digit million amount had already flowed out, and then a three-digit million amount at noon,” says Zadro. The institute only survived the day thanks to a well-stocked account at the Deutsche Bundesbank.
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VTB Europe’s struggle for existence is a thriller from which the entire financial sector can learn. It shows how quickly a hitherto healthy bank can fall into the abyss. How great the importance of thick capital and liquidity cushions is for the stability of financial institutions. And that financial supervisors play a crucial role in banks in times of crisis. Because to this day, the supervisors shield the bank from the parent company. According to their own statements, the exchange with the Moscow mother is limited to the bare minimum.
Bank receives 100 terminations from service providers
A lot was and is at stake for the entire German banking sector at VTB Europe, after all the institute has collected billions from German investors. In the event of difficulties, the private banks’ deposit insurance would have to compensate numerous customers. Some municipalities and insurers that have invested large sums with the institute could potentially lose some of their funds.
The pressure on Zadro is correspondingly high. In the first 48 hours after the Russian attack, the bank received around 100 notices from service providers. “All four major accounting firms have resigned, as have all law firms,” says the chief financial officer. At that time, the bank could not find a law firm anywhere in Germany that wanted to work with it.
In addition, the landline phones no longer work because the data lines belong to an American company. The bank receives an eviction notice from its landlord and is to leave the building within a month.
In the days after the outbreak of war, Zadro worked almost around the clock. When he wants to take a deep breath on Sunday morning and have a coffee at home in peace, his cell phone rings. Sebastian Weggenmann, who is in charge of VTB Europe at the financial supervisory authority Bafin, is on the phone.
Weggenmann tells Zadro he wants to speak to the entire board at 2 p.m. and impose a moratorium on VTB Europe. “I had a big lump in my throat at first,” recalls the CFO.
In a moratorium, a sarcophagus is placed over a bench. The deposit insurance then pays out funds and otherwise nothing happens until the insolvency administrator has started his work.
“With such a measure, you immediately destroy a three to four-digit million amount,” says Zadro. “Because their name is then broken, institutes are often forced to sell good loans at a discount of 50 or 60 percent.”
Sberbank Europe will be closed, VTB Europe will not
In those days, this fate befell Sberbank Europe, the European subsidiary of the largest Russian financial institution, Sberbank. It is based in Vienna and, unlike VTB Europe, is under the direct control of the ECB Banking Supervision.
This classifies Sberbank Europe and its subsidiaries in Croatia and Slovenia as “failing or likely to fail”. The bank will then be closed.
The Bafin also has a moratorium in the drawer for VTB Europe. After intensive negotiations with the management and representatives of the Bundesbank and deposit insurance, the inspectors then decide to let the bank live.
At the time, Raimund Röseler, the top bank supervisor at Bafin, was also involved. He emphasizes that the financial regulator shielded VTB Europe from Russian influence at an early stage. Then the aim was to “find a way to ensure that the deposits of the institute can be returned in full in the safest way,” says Röseler.
>>Read here: VTB Europe in a state of emergency: Four board members resign, lettering is covered
“When the decision was made, the German VTB Bank had a relatively large amount of equity and liquidity.” Of the almost one billion euros that the institute had in its Bundesbank account when the war broke out, almost 500 million euros were still there on Sunday. “That encouraged us to shut down the bank in an orderly manner,” explains Röseler.
The financial supervisory authority, which has been in the public eye more than ever since the Wirecard scandal, is taking a risk with its decision. If, despite all the controls, any funds flow from VTB Europe to Russia, the authority would immediately be the focus of criticism again, as was the case with Wirecard.
On the other hand, the Bafin decision ensures that the German deposit insurance does not have to step in again. This only had a major claim in 2021 with the bankruptcy of Greensill Bank. In addition, losses are avoided for institutional investors such as municipalities and insurers, some of whom have invested large sums with VTB Europe.
Four out of five board members resign
After six days of outflows in the three-digit million range, the situation at VTB Europe is gradually stabilizing again in the week after the Russian attack. In the following four days, amounts in the tens of millions are drained, then only one-digit millions. “We survived a bank run,” says Zadro. “Not many financial institutions can claim that.”
A key factor was that VTB Europe persuaded numerous corporate customers and real estate investors to repay their loans early. Some customers would have done this voluntarily to help the bank, says Zadro. “Others were happy that they could quickly get rid of us as a subsidiary of a Russian bank.”
But the crisis is far from over. The bank’s headquarters in Frankfurt was daubed several times, including slogans such as “Putin = murderer” and “Fuck Russia”. The management then covers the VTB symbol on the facade and hires a security service.
The bank has covered the lettering on the outside facade.
The next setback for the chief financial officer followed on March 25: his fellow board members Nicholas Hutt, Zac Fortune, Oxana Kozliouk and Oleg Osipenko resigned as a whole. They are all British citizens and are no longer allowed to work for Russian companies because of the British sanctions that have been imposed.
Kozliouk and Osipenko are also from Ukraine and didn’t want to work for a Russian bank anymore because of the invasion. As a result, Frank Hellwig was appointed by the Bafin in April as a special representative and CEO.
62-year-old Hellwig acts like an old-school banker. He wears cufflinks with his initials “FH” on his white shirt. He speaks calmly and calmly – and that’s exactly how he goes about his work.
Hellwig knows about bank closures. He is one of the best-known liquidators in the country. When Hypo Real Estate began to falter in the financial crisis of 2009, Hellwig set up the processing unit FMS Wertmanagement together with Christian Bluhm. “Our job was to get the best possible result on behalf of the German taxpayer,” says Hellwig.
In 2020, after the collapse of the payment service provider Wirecard, the next crisis operation awaited Hellwig. He took over the management of the Wirecard bank and handled this part of the insolvent payment service provider. But VTB Europe is politically even more delicate.
Borrowers no longer want to repay loans
Since the outbreak of the war, Bafin has had the auditing company Deloitte check that no funds are flowing into Russian channels at VTB Europe. When the Russian parent company VTB was put on the sanctions list at the beginning of April, the financial supervisory authority also prohibited it from exercising its voting rights at VTB Europe.
The institute would not have survived without the support of the financial supervisory authority, says Hellwig in retrospect. “The Bafin stood in front of us, behind us and next to us.” Without this commitment, the institute would never have received the necessary licenses from the US authority OFAC and the British OFSI. These are the basis for international banks to continue doing business with VTB Europe and for international debtors to be able to repay their loans.
Other bankers and financial supervisors also believe that Bafin acted prudently at VTB Europe in a difficult situation.
>>Read here: Germany subsidiary of VTB Bank switches off customer telephones due to “large number of inquiries”.
Many customers want to use the war as an excuse to stop repaying their loans – for example a large Italian hotel. “It has argued that some of its customers pay with American Express and that the hotel fears secondary US sanctions if the loan is repaid,” says Hellwig. He had also heard “adventurous excuses from other customers as to why they can no longer repay their loans”.
The continued existence of VTB Europe is therefore still hanging in the balance several times in the weeks after the outbreak of war. Since September, however, the bank has been able to send its debtors OFAC and OFSI licenses – and most of them pay again.
CEO wants to end banking at the end of 2023
The greatest danger seems to have been averted, Hellwig and Zadro have stabilized the institute. They have also started to shut down the business in an orderly manner – and want to complete this process as soon as possible.
“We want to end our banking business by the end of 2023,” announced Hellwig. “For this we must have paid out all free deposits.” The rest – funds from sanctioned customers and funds from unidentifiable investors – should be deposited with the district court.
In the first quarter, the bank wants to get a so-called liquidation resolution from its voting rights trustee. Then she could also actively terminate account relationships and contracts that cannot otherwise be terminated – for example because they have longer terms.
Hellwig does not know what will happen to the liquidity proceeds that are left over when VTB Europe closes its books one day. The funds may not be transferred to the sanctioned parent company. Some think it is conceivable that they could flow into a reconstruction fund for Ukraine – but that would require appropriate political decisions.
What Hellwig and Zadro will do from 2024 is also open. Zadro wants to calm down for a few weeks before he gets involved with new jobs. Hellwig is basically ready for further crisis operations. He doesn’t expect to run out of work. “The orderly downsizing of banks is definitely booming.”
More: VTB Europe sees no alternative to liquidation.