European banks, contending with escalating U.S. fines for sanctions violations, will likely bow to fresh bans imposed by the U.S. on financing Russian companies as the risks of dealing with the nation mount.
The U.S. Treasury on July 16 named Russian companies to be barred from accessing U.S. equity or debt markets for new financings with maturities beyond 90 days. Lenders elsewhere may follow the sanctions, according to two European banking officials who spoke on condition of anonymity.
The U.S., locked in the worst standoff with Russia since the Cold War, is enacting tougher sanctions than the European Union to force Russia to end support for separatists in eastern Ukraine. The U.S. authorities’ reach and severity with which they can punish sanctions violations became apparent last month when regulators fined BNP Paribas SA a record $8.97 billion for processing payments involving banned countries.
“European banks are going to be very careful not to jump into any gaps U.S. banks leave in Russia and will probably be tempted to hold off from doing new deals there,” said Dieter Hein, a banking analyst at Fairesearch GmbH in Kronberg, Germany. “The U.S. imposed draconian fines on European banks for breaking its rules this year. I can’t imagine that the possible profits could ever justify the risk.”
Eight of the 10 biggest lenders in Russia this year are domiciled in the EU, according to data compiled by Bloomberg. ING Groep NV, Societe Generale SA, and Citigroup Inc. accounted for the largest shares of loans extended to Russian companies so far this year, the data show.
Andrey Kostin, head of state-run lender VTB Group, warned the measures may tip the economy into recession, lead to the “disintegration” of financing and turn Russia into an outcast of global capitalism.
“European banks might be tempted to plug in the holes for Russian corporate financing, but they are more likely to remain cautious given the uncertainty around upcoming sanctions,” said Ishitaa Sharma, emerging markets trading strategist at Citigroup Inc. in London.
French lenders Credit Agricole SA and Societe Generale, Germany’s Deutsche Bank AG and Commerzbank AG, and UniCredit SpA, Italy’s largest lender, are among other financial institutions being investigated by U.S. authorities for alleged sanctions-busting.
Deutsche Bank, Europe’s biggest investment bank, is following developments around Russia and will apply any sanctions “if appropriate and as directed by the relevant authorities,” the company said in an e-mailed response to questions. The Frankfurt-based bank had 5.5 billion euros ($7.4 billion) of credit exposure to Russia at the end of March, according to its website.
Russian companies targeted by the sanctions face $14.9 billion of debt payments this year, data compiled by Bloomberg show.
ING intends to remain in Ukraine and Russia, Raymond Vermeulen, a spokesman for the Amsterdam-based bank, said in an e-mailed response to questions. Still, “we continue to critically look at our exposures and possibly reduce some, as we have been doing in the past months. We have intensified our monitoring and tightened acceptance criteria.”