Sberbank Europe breaks up after Russia sanctions run the bank

(Bloomberg) — Europe is cutting Sberbank from Russia’s PJSC business in the region after sanctions sparked by President Vladimir Putin’s invasion of Ukraine sent its domestic deposits rushing.

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Austria-based Sberbank Europe AG will be liquidated under local bankruptcy proceedings while all shares in its subsidiaries in Croatia and Slovenia will be transferred to other companies in those countries, according to the Individual Resolution Board, which deals with troubled European lenders. Shares of the London-listed parent company plunged 90% on Wednesday, with Russian shares trading still closed.

Read more: Sberbank slips 90% in London as local market continues to be closed

The United States and the European Union are intensifying actions against Russia by blocking some banks in the country from different parts of the global financial system. Last week, the United States said it had imposed sanctions on five of Russia’s largest lenders, including Sberbank and VTB Bank PJSC. While Sberbank in Europe represents only a small part of the lender’s overall business, closing it is another blow to Russia.

“I think it’s fair to say it was a dashing for the bank that was really driven by the heightened geopolitical risks and the sanctions that started,” Elk Koenig, who leads the Reserve Bank of Australia, told reporters on Wednesday. “It is not a bankruptcy due to negative equity, it is a bankruptcy due to a lack of liquidity.”

On Monday, the SRB suspended most payments in three of the bank’s divisions after the European Central Bank decided that Sberbank Europe and subsidiaries in Croatia and Slovenia may not be able to pay their debts or other obligations.

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Hrvatska Postanska Banka, Croatia’s only major state-owned bank, will take over Sberbank’s business in that country while Nova Ljubljanska Banka will take over Slovenia’s operations. Bloomberg reported its offerings earlier on Tuesday.

The SRB said the two units in the two countries would open on Wednesday “as usual without disruption to depositors or customers”. “They are now part of well-established, strong and stable banking groups.”

Austria’s financial markets regulator said it had banned Sberbank Europe from continuing to do business. This leads to payouts to customers, giving the country’s security system 10 banking days to pay up to 100,000 euros ($111,260) per depositor.

Covered Deposits

Russia’s largest bank said in a statement on its website that Sberbank had decided to withdraw from the European market after facing a stampede of deposits. Sberbank said that the bank was not able to provide liquidity to its subsidiaries due to an order from the Central Bank of Russia, however, local assets are sufficient to provide payments to all depositors.

Koenig confirmed this, saying she was “very confident” that Sberbank Europe’s assets would cover its deposits, although it remains unclear whether they will suffice for all of its obligations. Sberbank Europe earlier announced 13.6 billion euros in assets.

Austria’s Deposit Insurance Fund, which is backed by the country’s banks, said on Wednesday it covers about 913 million euros out of a total of 1 billion euros in total deposits in the local unit. The Vienna-based division of Sberbank has about 35,000 private depositors who reside almost exclusively in Germany, yet are protected by the Austrian system.

Including Sberbank, seven-year-old SRB has dealt with six bank failures, most recently in 2019. Most of these cases have seen lenders terminate under the National Insolvency Act. The last time the SRB made a decision, as it did with the Slovenian and Croatian subsidiaries of Sberbank, was in 2017 when it incurred losses on investors of Banco Popular Espanol SA and switched the lender to its bigger rival Banco Santander SA.

The Brussels-based regulator oversees lenders with cross-border companies and other important banks, leaving the failures of smaller banks, such as Germany’s Grensell Bank last year, in the hands of national authorities.

The European Commission said in a separate statement that the Czech authorities had decided to close and liquidate the Sberbank unit in that country, with depositors entitled to the same legal compensation as in Austria. Regulators in Hungary also ordered the liquidation of Sberbank’s Budapest unit.

German regulator BaFin said earlier this week that VTB Bank OJSC, a Russian lender that has been subject to tougher sanctions than Sberbank, is not accepting any new customers in its German unit, but existing customers who are not subject to sanctions can access their deposits. .

“Right now the financial system in Europe is definitely a stable financial system, but of course you never know what the future holds,” Koenig said. “But I would not consider anything really imminent on our part. It is clear that the banks with Russian ownership are under pressure, I think it is needless to say.”

(Updates with previous decision procedure in paragraph 12)

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