Exclusive-Regulators prepare for possible closure of VTB in Europe

By John O’Donnell and Tom Sims

FRANKFURT (Reuters) – Regulators are getting ready for a potential closure of the European arm of Russia’s second-largest financial institution, VTB Financial institution, amid rising issues in regards to the affect of Western sanctions on the financial institution following the Ukraine invasion, in response to two sources accustomed to the matter.

VTB Financial institution’s European operations could possibly be closed inside days by regulators in Germany, the place it mainly operates on the continent, one particular person with direct information of the scenario mentioned.

The second supply mentioned BaFin, the German regulator, was on “excessive alert”, monitoring the scenario intently and able to act if wanted though no remaining resolution had been taken.

VTB, which didn’t reply to a Reuters’ request for remark, mentioned on its European web site on Thursday that it was in shut session with BaFin. It mentioned that the financial institution was steady and totally operational.

The Russian finance ministry in Moscow and officers on the embassy in Berlin didn’t reply to requests for remark about VTB’s European division.

BaFin declined to remark.

The London Inventory Change Group (LON:)’s clearing arm LCH mentioned on Thursday it had positioned VTB Capital, the buying and selling division of VTB Financial institution, in default as a clearing member.

Final Friday, the alternate had suspended VTB Capital’s membership, that means it may not purchase and promote shares listed on the platform.

A spokesperson for the Bundesbank, which shares accountability for financial institution supervision, declined to touch upon a selected financial institution when requested about Russian banks in Germany however mentioned it was in shut contact with BaFin on this regard. “If needed, we’ll take the suitable measures,” the spokesperson added.

Ought to regulators resolve to shut VTB in Europe, it could mark the second failure of a serious Russian financial institution within the area as sanctions from the West squeeze the nation’s lenders. Many of the European operations of Sberbank, Russia’s largest financial institution, closed earlier this week.

VTB, which has greater than 4 billion euros of deposits in Europe, principally in Germany, can be lined by Berlin’s deposit safety scheme, which shields savers with as much as 100,000 euros.

BaFin has mentioned that VTB is not going to tackle new prospects and that present account holders had been in a position to entry their cash.

Supervisors, nevertheless, have been monitoring an outflow of deposits since Russia invaded Ukraine, one supply accustomed to the scenario mentioned. The particular person added that sanctions made it tough for the financial institution to recapitalise to fulfill calls for.

VTB has develop into one of many principal targets of financial sanctions in opposition to Moscow in latest days within the aftermath of Russia’s invasion of Ukraine.

On Wednesday, it was excluded from the SWIFT messaging system underpinning international transactions.

That adopted U.S. sanctions final week that successfully kicked the financial institution out of the U.S. monetary system, banned commerce with People and froze its U.S. belongings.

One European Union official, asking to not be named, mentioned VTB was in an analogous place to Sberbank as a result of each had been sanctioned and had been reputationally broken in Europe.

VTB had roughly 8 billion euros of belongings in Europe, in response to its most up-to-date quarterly statements. Its European prospects embody 600 firms, 150 monetary establishments from Russia and 160,000 personal prospects, in response to its web site.

In recent times, abnormal Germans and native governments have additionally parked their cash with VTB partly as a result of it was one in every of a handful of banks that didn’t cost destructive rates of interest.