Sberbank shrugs off Brexit fears with £4.5mn injection into London unit

Sberbank shrugs off Brexit fears with £4.5mn injection into London unit
A barman serves green cocktails at a Sberbank trade stand in Cannes.
By Jason Corcoran in London April 12, 2017

Sberbank, Russia’s biggest lender, has shrugged off concerns about Brexit by committing another £4.5mn ($5.6mn) to its troubled London investment bank, bne IntelliNews can reveal.

A filing made by the bank on April 9 with UK Companies House shows that an additional £4.5mn in capital was provided to keep the struggling operation afloat. The injection follows a simliar-sized award of £5.5mn made by the parent a year ago. Filings show that the Sberbank UK business now has an aggregate capital of £29.5mn.

A Moscow spokesman for Sberbank CIB, the group’s investment banking unit, confirmed that the £4.5mn capital injection had been made in March.

Sberbank regulatory filings last year show that the funds were made to support the UK unit’s capital base and to ensure that sufficient capital buffers were maintained, suggesting the Russian banking behemoth is committed to remaining in the UK beyond the country’s departure from the EU.

Sberbank CIB declined to immediately outline any plans it may have for setting up a headquarters for its investment bank within the EU.

Rough ride in UK

Sberbank, which controls about 46% of Russia’s deposits and a third of the nation’s loans, has had a torrid time in the UK over the few years. The business was cut to the bone following a quadrupling of losses in 2014 and a record $5mn sexual discrimination award to Svetlana Lokhova, a former equity saleswoman.

Lokhova was thrust back into the spotlight this month after it emerged she had struck up a friendship with Michael Flynn, US President Donald Trump’s disgraced former national security adviser, in her new role as a Soviet intelligence historian.

Lokhova was taunted by her London colleagues with unfounded allegations of drug use and driven to a mental breakdown, an employment tribunal ruled. She later passed a drug test taken at her insistence, while the tribunal ruled that then UK boss Paolo Zaniboni had victimised her by failing to discipline the London-based bankers who bullied her.

The former saleswoman was eventually awarded £3.2mn after finding she had been a victim of harassment, victimisation and discrimination amounting to constructive dismissal. Zaniboni and David Longmuir, a banker who was also implicated in the case, have both since left the London business.

Snarled by sanctions

Sberbank, like most Kremlin-controlled lenders, was sanctioned by both the US and the EU over Russia’s involvement in the Ukrainian conflict, and recently announced the sale of its Ukrainian business at a loss.

Sanctions do not prohibit clients from trading with Sberbank, but they do restrict investors from accessing debt and equity financing from these lenders with a maturity of longer than 30 days. To compound matters, many leading UK, European and US fund managers opted to sever trading lines entirely with Sberbank for fear of incurring the wrath of Wall Street regulators.

Hopes that the elevation of Trump to the US White House might lead to a relaxation of sanctions have since evaporated. On the contrary, Washington and London have been trying to gather support for imposing new prohibitions on Russia for its aiding of the Syrian regime of Bashar al-Assad. However, the UK and US on April 11 failed to persuade the G7 foreign ministers to apply new sanctions at the current time.

Shrinking act

The number of employees at Sberbank’s London office shrank last year to 30 from 37 for the prior year. Chief operating officer Adam Jesney was appointed as acting chief executive last year following Zaniboni’s departure.

Sources close to the bank had told bne IntelliNews last year that Sberbank boss German Gref was considering pulling the plug on its costly London and Wall Street operations.

Gref, a former economy minister under President Vladimir Putin, told Bloomberg News last year that investment banking is “not our strategy in the long term”, because it’s not growing as fast as the bank’s retail or corporate units. Gref has soured on investment banking since paying Armenian banker Ruben Vardanian and his colleagues more than $1bn in 2011 for Troika Dialog. The business was later rebranded Sberbank CIB.

bne IntelliNews reported exclusively in February last year that Gazprombank, Russia’s third-largest lender, had wound up its London business after it, like Sberbank, was sanctioned by the US and EU over Russian military adventurism in Ukraine. bne IntelliNews also broke the news in November that Russia’s UralSib had put its London unit up for sale. A sale of UralSib Securities to the emerging markets brokerage ITI Capital was finalised late last week.

Not all Russia banks are decamping from Londongrad even as many of their European, US and Chinese counterparts look to Frankfurt, Dublin and Luxembourg for new EU HQs.

VTB, Russia’s second-biggest lender, has been tempering initial talk that Brexit may force its retreat from London. A Financial Times report in October cited VTB deputy chairman Herbert Moos as saying the board was considering relocating its European HQ to an alternative hub, such as Frankfurt, Paris or Vienna. 

Since then, however, VTB has been keen to damp speculation that it may be retrenching from the UK, In March, the bank even hired several senior bankers in London from both Deutsche Bank and J.P. Morgan.

BCS Financial Services, the leading Russian brokerage on the Moscow exchange, is keen to keep growing its London business from its location at the Tower 42 office block.

“Let’s wait and see how the chips fall,” Luis Saenz, head of equity sales and trading at BCS in London, told bne IntelliNews. “We think it’s too soon to tell how things pan out to make any decisions now.”