Frankfurt, Riga It is a statement that would drastically change the strategy of credit institutions in Russia: Moscow apparently wants to block the sale of Russian subsidiaries by foreign banks.
“We have discussed in our sub-commission that now, until the situation improves, we will not issue approval for the sale of subsidiaries of foreign banks and their assets in Russia,” Deputy Finance Minister Alexei Moiseyev said recently, according to Russia’s Interfax agency. Moiseyev does not rule out that the Ministry of Finance could support the proposal to place the banks’ Russian subsidiaries under the control of Russian state banks in the future.
Since the Russian invasion of Ukraine, European banks are reconsidering their activities in Russia. Among the institutes with a great deal of commitment are the Austrian Raiffeisenbank International (RBI) and the major Italian bank Unicredit.
RBI has largely stopped doing new business locally since the outbreak of war. Nevertheless, the Russian business accounted for more than 20 percent of the group’s profit in the first quarter of this year. According to the company, the total commitment is almost 20 billion euros.
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Unicredit’s exposure to Russia amounts to 1.9 billion euros. The major US bank Citi is also still deeply involved in business with Russia. The financial institution’s commitment is currently around 8.4 billion dollars. It is the highest volume of any US bank.
According to HSBC, it has agreed to sell its Russian business to Expobank.
(Photo: Reuters)
All three banks are considering selling their Russian business or at least parts of it. According to media reports, Unicredit is considering a temporary exit. The institute is therefore considering selling its Russian unit with a buyback option.
Citi, on the other hand, is said to be negotiating with the Russian money house Expobank about the sale of part of its Russian business. According to RBI, it continues to keep all strategic options open for the future, including “a carefully managed exit from Raiffeisen Bank Russia”.
So far, only the French Société Générale (SocGen) has completed a sale of the European banks with exposure to Russia. In April, it sold its Russian subsidiary Rosbank and its insurance subsidiaries to the Russian billionaire Vladimir Potanin. For SocGen, the sale was a loss-making business: According to the bank, it had to write off around two billion euros.
HSBC agree on sale
The major British bank HSBC is also aiming for a sale. According to its own statements, it has agreed on a sale to Expobank. “Following a strategic review, HSBC has signed an agreement to sell 100 percent of its interests in HSBC Bank (RR) LLC to Expobank JSC,” a spokesman said. The completion of the transaction still has to be approved by the Russian authorities.
But that could pose a new challenge for the financial institution. Both the ministry of Deputy Finance Minister Moiseyev and the Russian central bank have to approve such sales.
At the central bank, this is always the case when shares of more than ten percent are acquired. So far, she has not received any application from HSBC, said the head of the central bank, Elwira Nabiullina, on Friday.
Even if Moiseyev’s statement about the blocking of such deals is clear: According to financial circles, for the time being it is only a matter of “wishes” on the part of the minister. So far there is neither a draft nor a law.
The central bank is also skeptical. True, according to Nabiullina, decisions on the sale of subsidiaries of foreign banks in Russia must be made individually and depend on the attitude towards Russian banks abroad. In her opinion, however, it makes no sense to now take over the management of the subsidiaries yourself.
In Germany, for example, the financial regulator Bafin prohibited the major Russian bank VTB from exercising its voting rights in the subsidiary VTB Bank Europe in April. As a result, the parent company from Saint Petersburg lost control of its subsidiary.
Total loss scenarios already played out
Volker Brühl considers Moisejew’s statements to be a new strategy by Moscow: “Russia wants to increase the pressure on foreign banks and thus significantly lower the purchase prices for domestic banks,” said the professor of banking and finance and managing director of the Center for Financial Studies at the Goethe University in Frankfurt, the Handelsblatt. So far, foreign credit institutions have had the opportunity to choose between a sale and a slow settlement. But this could change soon. “HSBC is setting a precedent for how serious Moscow really is,” he said Bruehl.
So far, neither the Russian Central Bank nor the Russian Ministry of Finance have commented on a query from the Handelsblatt about a possible blocking of sales.
The banks have already gone through the scenario of a total loss. In extreme cases, this would mean a loss of 5.2 billion euros for Unicredit. According to Citi, it is two billion dollars. At RBI, there is a total of 2.4 billion euros in equity in the Russian subsidiary.
Important positions will be filled
Due to the problems with sales and the uncertain future of their own business in Russia, foreign banks have increasingly been looking for staff since July, according to a Reuters report. Accordingly, RBI has advertised 276 new jobs, Citi 86. Unicredit is also said to be looking for new employees.
RBI denies a connection to the Handelsblatt: “We have been looking for employees in Russia for several months to replace those who left Raiffeisen Bank in Russia after the start of the war. This primarily affects system-relevant IT services,” said a spokesman.
Based on the total number of employees, an expansion of business in Russia seems unlikely. RBI employs around 9,000 people locally, while Citi has 3,000. “The banks are doing almost no new business locally. Rather, it’s about managing the existing business and maintaining payment transactions,” said Brühl.
In addition, many employees had also changed locations due to the war. According to Brühl, these vacancies must now be filled.
more on the subject: “Times are getting much worse” – Europe’s banks fear expropriations in Russia