Russia's Sberbank ordered to repay €1bn derivative losses to Transneft

Russia's Sberbank ordered to repay €1bn derivative losses to Transneft
Russia's central bank and market participants are concerned at Sberbank derivatives ruling. / Photo by Sberbank
By bne IntelliNews June 26, 2017

The Moscow court of arbitration has ruled that Russia's largest bank Sberbank should compensate state oil pipeline monopoly Transneft for RUB67bn (€1bn) that was lost on currency hedging operations with the bank as a result of ruble devaluation in 2015.

While the court argued on June 23 that Transneft was not fully informed of all the risks associated with the hedging instruments, Sberbank said it will appeal the ruling, calling it a dangerous precedent that would undermine the derivatives market and lead to massive banking losses.

Russian banks could suffer losses of up to RUB1 trillion if other large clients follow suit, according to the head of Sberbank CIB's global markets department Andrei Shemetov, Prime reported. The whole market of currency and other derivatives is estimated by Sberbank at $200bn.

The court has ruled that RUB67bn that Transneft lost on currency hedging was an "excess profit" for Sberbank, which ought to be compensated as the company had no means to evaluate the possible outcomes of the deal.

"It is difficult to imagine that one of the largest Russian companies that has about 100 similar deals with foreign banks did not have the qualified specialists to adequately evaluate the possible risks of the [hedging] deal," the press service of Russia's largest lender commented.

Should the court ruling be enforced, foreign market participants will pull out from derivative and spot-market deals, sharply cutting the liquidity of the market and undermining the achievements of Russian financial markets, Shemetov warns.

The Central Bank of Russia (CBR) also expressed concern at the ruling. "The Bank of Russia is concerned with the legal precedent on the financial derivatives market, which threatens almost all deals of Russian banks with non-financial organisations," the regulator told Reuters on June 23.

The Association of Russian Banks, as well as other financial market unions also issued concerned statements about the ruling in favour of Transneft.

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