European banks brace for fallout from Russia while US banks see limited pain

The City of London’s financial district is seen as people walk on the Millennium Bridge in London, Britain February 16, 2022. REUTERS/Henry Nicholls/File Photo

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  • Britain, EU and US announce sanctions against Russian banks
  • HSBC fears ‘wider contagion’
  • The most exposed Austrian, Italian and French banks

WASHINGTON/VIENNA/LONDON, Feb 22 (Reuters) – European banks braced for fallout from new global sanctions on Tuesday as the Ukraine crisis escalated, although U.S. bank executives said they expected more. that the sector is safe from major disruptions after withdrawing from Russia in recent years.

European banks – particularly those in Austria, Italy and France – have the world’s most exposure to Russia and have been on high alert for weeks if governments impose new sanctions on the country. Read more

HSBC warned of market contagion and Austria’s Raiffeisen Bank International (RBI) said it was preparing “crisis plans”.

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Britain was the first on Tuesday to act in retaliation for Russia’s recognition of two breakaway regions of Ukraine and the sending of troops. Britain hit five banks and three people, a relatively soft package that Prime Minister Boris Johnson said allowed him to ‘reserve powerful new sanctions’ for whatever ‘Putin might do next’. Read more

The European Union has also agreed to sanctions that will blacklist more politicians, lawmakers and civil servants, bar EU investors from trading Russian government bonds and target imports and exports with separatist entities. . Read more

“This sanctions package… is going to hurt Russia, and it’s going to hurt a lot,” EU foreign policy chief Josep Borrell told a news conference.

German Chancellor Olaf Scholz has said he is suspending certification of the Nord Stream 2 gas pipeline, an important future energy source for Europe’s biggest economy. Read more

Then, on Tuesday afternoon, US President Joe Biden announced sanctions targeting two Russian banks, the country’s sovereign debt, Russian elites and family members, and warned that Russia would pay an even higher price if she continued her aggression. Read more

Since Russia’s annexation of Crimea in 2014, the United States and the European Union have blacklisted specific individuals, sought to limit Russian public financial institutions’ access to Western capital markets, and imposed bans on the trade in arms and other limits on the trade in technology, such as that of the oil sector.

This prompted banks, particularly in the United States, to reduce their exposure to Russia, making some bankers less concerned about the threat of sanctions on their businesses and more focused on the impact of geopolitical tensions on the market.

The boss of HSBC (HSBA.L), one of Europe’s biggest banks, said on Tuesday that “broader contagion” for global markets was concerning, even if the bank’s direct exposure was limited. Read more

“It is clear that there is a likelihood of contagion or second order effect, but it will depend on the severity of the conflict and the severity of the retaliation if there is conflict,” Noel Quinn told Reuters in a statement. interview.

U.S. banks, meanwhile, do not expect global sanctions to have a major impact on U.S. banking or trigger contagion risk, given that lenders have little exposure to the Russian economy, they said. said four executives familiar with industry thinking.

According to the Bank for International Settlements, US lenders had only $14.7 billion in outstanding claims on Russia in the third quarter of 2021.

U.S. banks and financial industry lobby groups have held meetings with the Biden administration to discuss sanctions in recent days, three of the sources said. One said banks had spent the past 24 hours identifying who might be potential sanctions targets so they could act quickly.

Another said the administration contacted industry leaders before Christmas and kept banks informed of its thinking.

The person added that one potential area of ​​concern was the disruption that could be created if the US decides to target Russia’s access to the SWIFT international payment network, although this is considered unlikely in the future. close.

Indeed, cutting Russia off from the international payments network could seriously harm its economy and ordinary citizens, and create enormous complexity and compliance risks for the global banking industry.

RBI (RBIV.VI), which has significant operations in Russia and Ukraine, said business was now normal, but “in the event of an escalation, the crisis plans the bank has prepared over the past few weeks will come into play. in force”. .

Shares of the Austrian bank fell 7.48% on Tuesday.

Dutch lender ING (INGA.AS), which has a strong presence in Russia, said: “A further escalation of the conflict could have major negative consequences.

A Danish pension fund said it would immediately halt new Russian investment following Putin’s arrival in Ukraine.

As several jurisdictions rolled out new penalties, bankers said they hoped governments would coordinate when writing the fine print, to reduce complexity for the industry.

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Reporting by Laurence White in London, Alexandra Schwarz-Goerlich in Vienna and Pete Schroeder in Washington; additional reporting by Iain Withers and Tommy Reggiori Wilkes in London, Toby Sterling in Amsterdam, Michelle Price and Hannah Lang in Washington and Matt Scuffham in New York; Written by Tom Sims; Editing by Jonathan Oatis and Rosalba O’Brien

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