Deutsche Bank is transferring its Russian custody clients to VTB, six months after a trading scandal forced it to close its investment bank in Moscow, bne IntelliNews can reveal.

The beleaguered German lender said on September 18 it was closing its corporate banking & securities business unit after a probe by domestic and international regulators into alleged money laundering. At the time, Deutsche said its local custody business would be discontinued, without saying what would happen to its many corporate clients.

Letters to companies about the start of transfer of the local custodian business to VTB were received in late March week, corporate sources told bne IntelliNews.

Deutsche, whose ties with Russia stretch back 134 years, established custody operations in 1998 servicing both local and international clients. It is understood the bank will still manage the depositary receipt programmes, which are held in London and New York.

A Deutsche Bank spokeswoman in Moscow declined to comment. A VTB spokeswoman said it was "incorrect" to say a deal had been struck with Deutsche Bank to buy the business.  

Custody and fund administration can be a relatively low-margin business for investment banks so it seems likely the business and clients are being transferred without payment.

A custodian is usually a large and reputable bank which holds securities and assets in electronic or physical form. They are responsible for the safety of assets and securities that may be worth billions of dollars. In addition, most custodian banks also offer a range of services, including account administration, transaction settlements, collection of dividends, interest payments, tax support and foreign exchange.

Deutsche Bank sensationally closed its Moscow investment bank last year amid an investigation by US and European regulators into so-called "mirror-trading'' involving about $10bn of transactions over four years.

The lender said in October it had discovered abuses of internal policies during its investigation into mirror trading, which may have enabled the lender's clients to shift money offshore without alerting the relevant authorities. Tim Wiswell, Deustche's head of Russian equities, lost his job last year after 12 years at the lender amid the probe. He has denied any wrongdoing.

Banking insiders told bne IntelliNews that Deutsche was forced to shut down the Moscow business after the Central Bank of Russia (CBR) threatened to revoke its main banking license amid the furore over allegations.

Only the intervention by a senior German politician, believed to be Finance Minister Wolfgang Schaeuble, and a pledge to wind down the operation averted that course of action, according to a senior Moscow banker familiar with the central bank's dealings. Deutsche Bank rejected this version as untrue after it was reported.

VTB famously set up its own investment bank after engineering a dawn raid of some of Deutsche Bank's top talent in 2008. The Russian bank lured about 150 personnel from the German giant, including Yuri Soloviev, then first deputy chairman.

Within three or four years, VTB Capital had replaced Deutsche Bank as the biggest trader of Russian securities and the leading organiser of Russian initial public offerings and debt deals.

VTB executives have said they want the investment bank to become as pervasive and powerful in Russia as Deutsche Bank is in Germany as well as influential on global markets.