Megan Davies, David French

NEW YORK (Reuters). – The Western sanctions against Moscow could put into doubt the lucrative Russian investment banking market that many large U.S. bank have kept, legal experts said. That could lead to a loss of tens of million dollars in fees.

Major U.S. banks, including JPMorgan Chase & Co (NYSE:), Morgan Stanley (NYSE: Citigroup Inc (NYSE 🙂 continue to support and advise Russian deals. They often work alongside VTB’s investment bank arm. VTB Capital, Russia’s largest investment bank in terms of fees, is VTB Capital.

Lawyers said that the U.S. placed sanctions on VTB (and Sberbank) on Thursday in response to Russia’s invasion in Ukraine. This makes it difficult for them to do so again in the future. This has been made worse by Saturday’s announcement of moves to prevent certain Russian banks from accessing the SWIFT international payments system.

All U.S. banks refused to comment.

All assets of VTB (including 20 subsidiaries) that could have touched U.S. finances would be frozen under the U.S. sanctions. U.S. people would also be forbidden from dealing with these assets.

According to one lawyer, the VTB sanctions, which were equally severe as those placed on terrorist organizations, will raise compliance concerns and create new reputations for Russian banks. They also make it virtually impossible for U.S. bankers to deal with VTB in any transactions.

Clay Lowery is executive vice president of the Institute of International Finance in Washington.

According to one lawyer representing financial institutions, the sanctions are “a wall.” Banks now face the reputation risk when dealing with Russia, even if it’s not among the sanctioned entities.

Ross Delston is a former U.S. bank regulator and lawyer. He stated that Russia would be viewed by U.S. banks as being “radioactive”.

However, there is hope for U.S. bank in Russia despite all the restrictions.

One source who is familiar with a Moscow-based U.S. bank said they were trying to figure out how to use the sanctions, and that there might be an impact on their investment banking business. The source stated that the bank is not looking to leave the country.

A source close to another U.S. bank said that even if VTB could not be in deals such as IPOs or M&A, other banks could replace it – as long as those banks are not also subjected to sanctions. The source claimed that the sanctions weren’t an impossible problem for the international banking institutions, and added that other markets exist as well as revenue sources for them.

VTB claimed in a statement Thursday that sanctions were “a real reality” for them over the last few years and they have had time to “learn the lessons and prepare ourselves for the worst” Follow-up questions were not answered by the bank.

Since 2014 when the United States sanctioned Moscow’s invasion of Crimea, Russia’s investment banking industry has declined. However, U.S. banks still managed to hold a foothold on the market.

Russia was responsible for 0.27 percent of the global fee pool last year. This includes advisory and underwriting fees related to mergers and acquisitions as well as equity and debt capital market markets. Russia represented nearly 1% in the global fee pool for 2013.

This number still translates into large fees. Refinitiv data revealed that VTB Capital’s investment banking arm, Russia’s No.2 Bank, collected $142.9 Million, or about a third of Russia 2021 fees.

JPMorgan finished second with $32.8 million. Morgan Stanley came fourth at $27.3 million. Citigroup came fifth with $22.8 millions. Goldman Sachs (NYSE) was seventh at $19.5 million.