Western Banks Are Investigating Asset Swaps As A Way To Exit Russia

UniCredit and Citigroup are investigating asset swaps with Russian financial institutions as Western banks exiting the country make efforts to avoid hefty write-downs on their operations, according to those with knowledge of their plans.

The banks are among a small number of western lenders with a significant presence in Russia. Moscow’s invasion of Ukraine and subsequent international sanctions have forced foreign bank executives to consider turning their backs on the country.

An analysis by the Financial Times last week found that Western banks were already stealing more than $10 billion in losses on their Russian operations.

UniCredit has received several offers from Russian financial institutions to buy its local subsidiary since its CEO, Andrea Orcel, said in March it was considering leaving the country, according to people familiar with the matter.

One bid came from the Interros group, the investment firm of Vladimir Potanin, one of Russia’s richest men and an oligarch who has not been sanctioned by the US, UK or EU, according to those with knowledge of the approach. But UniCredit had immediately turned down the offer, she added.

However, the Italian bank has continued to talk about selling its Russian operations to a handful of unsanctioned financial institutions – some of which are looking to expand into Russian banks – although a deal is not close, people over the talks said. are informed.

The Russian banking sector is going through a period of rapid consolidation, prompted by Western companies trying to exit the market and domestic companies suffering the weight of foreign sanctions.

Interros has already acquired several companies, including the acquisition of the Rosbank subsidiary of French bank Société Générale and a 35 percent stake in the highly regarded fintech TCS from Russian businessman Oleg Tinkov.

Meanwhile, VTB, Russia’s second-largest bank, has received support from the central bank to acquire state-owned Otkritie and RNCB. All three have been hit by Western sanctions.

SocGen, which first entered Russia 150 years ago, is in danger of losing 3.1 billion euros on the sale of Rosbank.

UniCredit declined the Interros deal to avoid such a blow, said people aware of the approach. “Why should we transfer the company for just one ruble?” said one of the people.

The Italian bank has said it could lose €5.3 billion if its entire Russian business were wiped out.

Citi, which first announced last year that it was trying to sell its Russian retail business, and UniCredit have both been exploring deals that would see them swap their Russian operations for the local lender’s foreign businesses, according to those with knowledge of the plans.

UniCredit has been working on deals with unsanctioned banks where it would exchange its Russian loan books for the counterparty’s foreign loan portfolios, according to a person briefed on the arrangements.

This was one of the factors that enabled the bank to reduce its net cross-border exposure to Russia from €4.5 billion in early March to €3.2 billion at the end of April.

But as more Russian banks have been hit with sanctions in recent weeks, those options have become more challenging.

VTB and Sberbank, the country’s two largest lenders accounting for half of its banking assets, were the only two Russian banks with significant foreign operations. But both have been added to Western sanctions lists in the past two months and are in the process of closing their European businesses.

A sale to an unsanctioned entity, rather than an asset swap, is preferred by Citi. It is in “multiple talks” with medium-sized Russian banks to sell its consumer and some of its commercial activities in the country, a person familiar with the matter said.

The US lender declined to comment, pointing to CEO Jane Fraser’s comments earlier this month, when she said it was in “active dialogue” with potential buyers of its Russian operations.

Western banks have also discussed with regulators the possibility of getting special carve-outs as a last resort to negotiate deals with sanctioned individuals and companies.

“If you can’t sell to a sanctioned person, what’s your only option? Go talk to the people who are imposing the sanctions,” said a banker involved in plans for an international divestment.

“In fact, they have told us that we can sell to a certain type of sanctioned person or entity. Probably not, but we’ve had the talks, we have the coverage to discuss things, we need to explore all options.”

UniCredit and Interros declined to comment.

Additional reporting by Nastassia Astrasheuskaya in Riga

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