Raiffeisen Leads Europe Bank Slump as Russia Sanctions Hit

European Banks With Russia Links Get Pummeled as Sanctions Hit

Shares of European banks with links to Russia suffered the sharpest declines on the region’s exchanges Monday, as Western nations intensified financial sanctions on Moscow following the invasion of Ukraine.

Austria’s Raiffeisen Bank International led the declines with a drop of as much as 18.5% after the open in Vienna, amid investor concern that the sanctions would hit one of the lender’s most profitable units. France’s Societe Generale SA and Italy’s UniCredit SpA were both down more than 10%. All three have significant businesses in Russia. 

Lenders are grappling with a rapidly shifting scenario after the U.S. and EU ramped up their measures against Russia blocking some of the nations banks from the international SWIFT transaction messaging system and moving to target the central bank’s foreign exchange reserves.  The ruble sank at the open on Monday, prompting emergency interest-rate hikes.

The Stoxx 600 Europe banks index was down 6% as of 1:06 p.m. in Paris. The overall Stoxx 600 index declined 1.3%. 

Raiffeisen Leads Europe Bank Slump as Russia Sanctions Hit

Raiffeisen said early Monday that it couldn’t yet estimate the financial effect of sanctions as they were being expanded daily, according to a statement Monday. Chief Executive Officer Johann Strobl later said in a statment that the lender’s Russian subsidiary had a strong capital and liquidity position, and that clients had shown confidence through crises “time and again.” Shares pared losses, down 13%.

The bank has about 11.6 billion euros of its loans in Russia, or 11% of its total, and makes more than 30% of its pretax profit there, according to Bloomberg Intelligence.

“The exclusion of Russian banks from international payments means that these financial institutions can no longer repay their debts to their European creditors,” VP Bank chief economist Thomas Gitzel said. “For the EU as a whole, Russia’s liabilities are manageable. The claims amount to around US$75 billion or 0.7% of the total bank claims. French, Italian and Austrian banks have the highest absolute claims.”

Last week the European Central Bank told lenders active in Russia to report on the risks they face from a range of diplomatic and military scenarios related to Moscow’s tensions with the West over Ukraine, according to people familiar with the matter.

In January, UniCredit, Italy’s second-largest bank, walked away from a possible deal to take over Russian lender Otkritie Bank FC, with Chief Executive Officer Andrea Orcel signaling that the military build up in the region was a factor in the decision. UniCredit already had some 4,000 employees in Russia, and signaled that it was generally committed to its business there. 

BNP Paribas, which was down almost 9%, issued a statement Monday putting its exposure to Russia and Ukraine at around 500 million euros ($559 million), and said it secured its activities there with “an important level of guarantees and collaterals.” 

The sell-off hit not just banks with significant dealings in Russia but also those that may be exposed to second-round effects. ING Groep NV and Deutsche Bank AG were down 10% and 8% respectively.

Deutsche Bank is “exposed to companies that in turn do business in Eastern Europe,” Andreas Meyer, CEO at Fountain Square Asset Management GmbH. “The more interconnected a bank is, the greater the likelihood that these sanctions will now affect certain business areas.”

Analysts at JPMorgan Chase & Co said that bank stocks would be unlikely to perform as long as the Ukraine crisis dominates headlines.

“Banks have given back some of their strong rally in the past two weeks, but our banks analysts believe the exposure to Russia and Ukraine is very manageable, amounting to less than 1% of book values,” strategists led by Mislav Matejka said in a note on Monday.

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