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Exclusive-Regulators prepare for possible closure of VTB in Europe

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© Reuters. FILEPHOTO: A worker poses while taking a photograph and displaying a VTB payment card at the Moscow branch, Russia. May 30, 2019. REUTERS/Evgenia Novozhenina/File Photo

John O’Donnell, Tom Sims

FRANKFURT, (Reuters) – Regulators prepare for the possible closing of VTB Bank’s European branch, Russia’s second largest bank. This is amid increasing concerns over the effects of Western sanctions following the invasion of Ukraine. Two sources are familiar with this matter.

VTB Bank’s European operations may be shut down by German regulators within days, according to one source with direct knowledge.

According to the second source, BaFin (German regulator) was “on high alert”, closely monitoring the situation and prepared to respond if necessary, although there had not been a final decision.

VTB didn’t respond to Reuters’ request for comment. On Thursday, VTB stated that they were in close contact with BaFin. The bank is stable and operational, it said.

Officials at Berlin’s embassy and the Russian Finance Ministry in Moscow did not reply to inquiries about VTB Europe.

BaFin refused to comment.

It London Stock Exchange LCH, Group’s clearing arm, stated on Thursday that it had defaulted as clearing member VTB Capital (the trading division of VTB Bank), by LON:

VTB Capital was banned from the exchange’s platform last Friday. This meant that VTB Capital could not buy or sell stock listed on the site.

When asked by BaFin about Russian banks, a spokesperson from the Bundesbank declined to speak on behalf of a particular bank but indicated that they were in constant contact. The spokesperson said that they would take appropriate steps if necessary.

If regulators close VTB Europe, this would be the second major Russian bank failure in Europe as West sanctions continue to squeeze Russia’s banks. Sberbank Russia, Russia’s biggest bank, has closed most of its European operations in Europe earlier this week.

VTB’s deposits of more than 4 Billion Euros in Europe (mainly in Germany) would be protected by Berlin’s deposit protection program, which protects savers from losses up to 100,000 euro.

BaFin said VTB won’t take on any new customers. Existing account holders can access their money.

According to a source, supervisors are monitoring the flow of money since Russia’s invasion of Ukraine. One source said that the sanctions were making it more difficult for the bank’s to have enough capital to fulfill demands.

In the wake of Russia’s invasion of Ukraine, VTB was one of the main targets of economic sanctions on Moscow.

It was removed from the SWIFT messaging network that supports global transactions on Wednesday

This followed U.S. sanction last week, which effectively kicked out the bank from the U.S. Financial System and banned American trade. It also frozen its U.S. assets.

Unnamed official from the European Union said that VTB was similar to Sberbank, as both had been sanctioned in Europe and were reputationally damaged.

According to the most recent quarterly statements, VTB held approximately 8 billion euro worth of assets in Europe. The website lists 600 European companies and 150 financial institutions in Russia as well as 160,000 customers.

VTB has been a popular bank for ordinary Germans as well as local government officials in recent years. This is partly because VTB was among a few banks that didn’t charge any negative interest rates.

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