ECB to force UniCredit to downsize in Russia

● The European Central Bank (ECB) is poised to order Italy’s UniCredit to cut back its business with Russia, two people with knowledge of the discussions said, as the regulator exerts pressure to choke off European financial ties with Moscow.

The demand on the second-biggest European bank in Russia would be similar to what the ECB wants from Austria’s Raiffeisen Bank International (RBI), the largest Western bank active in the country, the people told Reuters, requesting anonymity because the matter is confidential.

The ECB and UniCredit declined to comment. RBI said on Thursday that the ECB will ask it to cut lending in Russia as well as payments within a set time frame. After months of discussions, the ECB is set to send UniCredit a legally binding order, the sources said.

This is the penultimate step before the ECB can impose penalties, such as fines. A formal ECB warning to UniCredit will offer Italy’s second-largest bank a final opportunity to avert such an enforcement procedure by the supervisor that could lead to sanctions, another person said.

Two years after Russia’s invasion of Ukraine, European regulators are ratcheting up pressure on its lenders as the conflict continues. Western countries have been tightening sanctions on Russia and the Group of Seven industrial democracies is now studying ways to harness frozen Russian sovereign assets to help fund Ukraine.

RBI and UniCredit have been in Russia since the collapse of the Soviet Union more than three decades ago.

Shares in UniCredit were last down 0.9% after the Reuters report. UniCredit CEO Andrea Orcel in February said the bank is continuing to scale back the business.

The bank’s Russia unit reported pretax profit of €890m in 2023, about 7.7% of the group’s total. That compares with pretax profit of €210m in 2021, before the war broke out. Though the Russian unit’s loans halved from the previous year and the number of employees dropped by about 8% to about 3,150, revenues rose 17% yearly at constant currencies as bank fees increased.

In June, Andrea Enria, the then chief of the ECB’s supervisory arm, told the European parliament that he had “repeatedly and publicly expressed concerns about the disappointingly slow progress” by banks in reducing their business in Russia. He said the ECB had asked “banks to speedup their downsizing and exit strategies by adopting clear road maps and by regularly reporting to their management bodies and to ECB Banking Supervision on the execution of these plans”.

Leading governance adviser Glass Lewis has urged UniCredit shareholders to be “mindful of the company’s continuing operations in Russia”.