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European Bank shares uneasiness as a series of sanctions become available

FILE PHOTO: The financial district with Germany's Deutsche Bank and Commerzbank is pictured in Frankfurt
FILE PHOTO: Financial district in Frankfurt, Germany, March 18, 2019. REUTERS / Ralph Orlowski

February 25, 2022

By Tom Sims and Carolyn Cohn

FRANKFURT/LONDON (Reuters) – European bank shares were volatile on Friday after plummeting a day earlier, as bankers grapple with the potential impact of a raft of post-invasion sanctions. Russia’s strategy in Ukraine.

Stocks wavered as missiles hit the Ukrainian capital and President Volodymyr Zelenskiy begged the international community to do more, arguing that sanctions announced so far were not enough.

Leading European banks initially recovered some points but by mid-morning the European banking sector index was down 0.1%, after falling 8% on Thursday.

Details of the next round of European sanctions are still underway but the European Union is expected to freeze Russian assets in the bloc and block banks’ access to the market. European finance as part of what EU foreign policy chief Josep Borrell describes as “the harshest sanctions package we’ve ever implemented”.

“This package includes financial sanctions, targeting 70% of the Russian banking market and key state-owned companies, including the defense sector,” said Ursula von der Leyen, head of the Commission. EU said on Twitter.

Behind the scenes, bankers say they and their lawyers are scrambling to determine the impact of the sanctions.

In a sign that the sanctions are starting to take effect, the London Stock Exchange on Friday suspended VTB Capital’s membership. The company is owned by one of Russia’s largest banks and is no longer tradable on the LSE.

In a report on Friday, JP Morgan analysts said the sanctions would have a limited direct impact on banks, and the bigger issue is the impact on the economy.

“The main risks for European banks relate to a decline in GDP due to higher prices of related goods and therefore a possible delay in interest rate hike expectations,” the report said.

The prospect of higher interest rates has brightened the earnings outlook for banks after years of extremely low and negative interest rates have eaten away at their profit margins.

Meanwhile, banks are taking emergency measures. German bank Solarisbank said it had evacuated its technology center in Kyiv, which it opened last year with dozens of employees.

“It’s sad to think that just a week ago I was in Kyiv, working and growing a business. Now we have to rebuild our plans and to adapt,” Ukraine’s bank director, Dumitru Condrea, posted on LinkedIn.

On Thursday, banks with the largest share of transactions with Russia fell the most.

That includes Austria’s Raiffeisen International Bank, which lost 23%, regained 2.2% on Friday. Societe Generale, lost 12% on Thursday and fell another 2.2% on Friday.

Some investors have cut their exposure to the Russian crisis.

Andrew Formica, chief executive officer of Jupiter Fund Management, said: “We’ve had our own screened view of what business is likely to be impacted through the strong sanctions and that’s it. areas where we are looking to reduce our risk,” said Andrew Formica, chief executive officer of Jupiter Fund Management.

For European banks, the biggest concern is that governments will cut Russia off from the international payment network SWIFT, but so far that has not happened.

Bankers argue that cutting Russia off from the international payment network could seriously damage the country’s economy and people on a daily basis, and would create complications and compliance risks. huge for the global banking industry.

While Britain is pushing for Russia to pull out of SWIFT, French Finance Minister Bruno Le Maire said on Friday that the option would only be used as a last resort.

(Additional reporting by Frank Siebelt, Hakan Ersen, Huw Jones, edited by Miranda Murray and Elaine Hardcastle)

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Caroline Bleakley

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