Banks’ $15.7b hit in retreat from Russia

Ukraine invasion is forcing major US and European lenders to leave

Western banks are steeling themselves for a US$10 billion ($15.7b) hit on their their forays into Russia, as they prepare to pull out of the country because of its invasion of Ukraine.

International sanctions have forced banks to consider turning their backs on a country that some lenders first entered more than a century ago.

Last week a string of European banks set aside billions of euros in provisions ahead of the closure of their Russian operations, following similar moves by United States lenders last month. Western banks collectively have $86b of exposure to Russia — with close to 40,000 staff — and are setting aside more than $10b in expectation of losses on their ventures, according to Financial Times calculations.

Italian lender UniCredit set aside € 1.3b ($2.15b) to cover potential losses, warning that it could face a loss of € 5.3b if its entire Russian business was wiped out. “I’m sure you have noticed the speed of change in terms of . . . waves of sanctions,” said UniCredit chief executive Andrea Orcel. The bank, which has 4000 workers and two million customers in the country, has been in Russia for 17 years.

Societe Generale, the French lender that first entered Russia 150 years ago, has set aside € 561 million of provisions for the first quarter. The bank said last month that it had agreed to sell its Rosbank subsidiary to an investment company founded by billionaire Vladimir Potanin and expects to take a € 3.1b hit on the sale. The French lender has 3.1 million retail customers in Russia and € 18b of exposure to the country. Rosbank employs 12,000 people.

Fellow French bank Credit Agricole announced a € 389m provision for its Russian exposure and said it was writing down € 195m for the total equity value of its Ukrainian business. Austria’s Raiffeisen has 4.2m customers and 9,400 staff in Russia, with € 22.9b of assets in the country — the most exposed of any foreign bank. Its € 319m of provisions for bad loans in the first quarter were mostly tied to the Ukraine war.

Credit Suisse last month said it had lost SFr206m (US$332m) related to Russia’s invasion. Chief executive Thomas Gottstein said most of the bank’s 125 staff in the country were on paid leave as the bank weighs up how deeply to cut its operations. Around 4 per cent of the group’s wealth management assets, or SFr28b, are linked to Russian clients. UBS said it had cut its risk exposure by a third to US$400m since the start of the year, but this had brought US$100m of costs.

Among US lenders, Citigroup has disclosed the largest direct exposure to Russia, warning of up to US$3b in potential losses linked to its operations in the country. The bank last month set aside US$1bn for its Russian exposure.

Citigroup has been trying to divest its Russian consumer bank since last year and said in March it would expand its exit from Russia to include other operations.

JPMorgan Chase said it had provisioned roughly US$300m to cover markdowns on loans associated with Russia, although chief executive Jamie Dimon had warned investors at the start of April that the bank could lose up to US$1b on its exposure to the country.

Goldman Sachs as of March had US$260m in credit exposure, down from US$650m in December. The bank said in first-quarter earnings it had suffered a net loss of about US$300m on investments related to the country and Ukraine. Goldman has also said it is “winding down” its business in Russia while JPMorgan Chase has “been actively unwinding Russian business”.

Morgan Stanley said it had a “limited” direct exposure to Russia after giving up its banking licence in the country years before the invasion. - Financial Times

I’m sure you have noticed the speed of change Andrea Orcel