Russia owes Western banks $120 billion. They won’t get it back

Goldman Sachs said Thursday that it is “winding down its business in Russia in compliance with regulatory and licensing requirements.” JPMorgan Chase, America’s largest bank, followed within hours, saying it was “actively unwinding” its Russian business.

The departures follow a scramble by Western banks to tally their exposure to Russia after President Vladimir Putin ordered the invasion of Ukraine, triggering punishing sanctions that cover most of the country’s financial system, including its central bank and top commercial lenders — VTB and Sberbank.

The exits also come after a stampede of Western businesses out of just about every other sector of Russia’s economy, and as ratings agencies warn that a Russian debt default is imminent.

International banks are owed more than $121 billion by Russian entities, according to the Bank for International Settlements, which suspended Russia’s membership on Thursday. European banks have over $84 billion total claims, with France, Italy and Austria the most exposed, and US banks owed $14.7 billion.

Goldman Sachs (GS) earlier that it had credit exposure to Russia of $650 million disclosed in December 2021. JPMorgan Chase (JPM) said its current activities in Russia are “limited.”

Other banks with more to lose could soon follow Goldman Sachs and JPMorgan Chase out of Russia. Kremlin spokesperson Dmitry Peskov said Thursday that the economic situation in Russia is “absolutely unprecedented” and blamed the West for an “economic war.”

Putin on Thursday gave his backing to plans to sixteen assets left behind by Western companies that have suspended or abandoned their operations in Russia.

Fitch Ratings previously warned that “large western European banks’ asset quality will be pressured by the fallout from Russia’s invasion of Ukraine,” and that their operations also face increased risk as they race to comply with international sanctions.

french bank Societe Generale (SCGLF) said last week it is “rigorously complying with all applicable laws and regulations and is diligently implementing the measures necessary to strictly enforce international sanctions as soon as they are made public.”

The bank said it had almost $21 billion in exposure to Russia at the end of last year.

Societe Generale “has more than enough buffer to absorb the consequences of a potential extreme scenario, in which the group would be stripped of property rights to its banking assets in Russia,” it said.

France’s BNP Paribas (BNPQF) said on Wednesday that its exposure to both Russia and Ukraine totals €3 billion ($3.3 billion).
Italy’s UniCredit (UNCFF), which has been operating in Russia since 1989, said last week that its Russian arm was “very liquid and self-funded,” and that the franchise accounts for just 3% of the bank’s revenue. On Tuesday, he said that its exposure to Russia totals roughly €7.4 billion ($8.1 billion).
Swiss credit (CS) Thursday said that it has exposure to Russia of 1 billion Swiss francs ($1.1 billion).
Deutsche Bank (DB) said in a statement on Wednesday that it has “limited” exposure to Russia, with gross loan exposure of €1.4 billion ($1.5 billion). The German lender said it has significantly reduced its exposure to Russia since 2014, with further action taken over the past two weeks.
US banks could feel pain, too. Citigroup (VS) last week that it had disclosed roughly $10 billion in total exposure to Russia.

Mark Mason, the bank’s chief financial officer, told investors that the bank has been performing tests to evaluate the consequences “under different stress type of scenarios.” He said the bank could lose roughly half its exposure in a “severe” scenario.

Citi said Wednesday that it would stick to its plan of exiting its consumer banking business — but it might be very hard to find a buyer given the political and economic climate.

“As we work toward that exit, we are operating that business on a more limited basis given current circumstances and obligations,” it said in a statement. “With the Russian economy in the process of being disconnected from the global financial system as a consequence of the invasion, we continue to assess our operations in the country,” it added.

The European Central Bank addressed the risk to the banking sector on Thursday, saying that Europe’s financial system has enough liquidity and there were limited signs of stress.

“Russia is important in terms of energy markets, in terms of commodity prices, but in terms of the exposure of the financial sector, of the European financial sector, Russia is not very relevant.” said Luis de Guindos, vice president of the central bank.

“The strains and the tensions that we have seen are not comparable at all to what happened at the beginning of the pandemic,” he added.

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