European banks take more provisions for Russian operations

European banks take more provisions for Russian operations
UniCredit booked an additional provision reserve of €1.3bn for its Russian subsidiary in its 1Q21 results.
By bne IntelliNews May 6, 2022

European banks reported more write-downs and provisioning for future losses at their Russian operations as they look for ways to exit. Societe Generale is the first of the major European financial groups to have found a way to quit Russia, with Austria’s Raiffeisen Bank and Italy’s UniCredit still at the crossroads.

European banks are set to lose over $7bn through pulling out of Russia followikng Moscow's military invasion of Ukraine on trading losses, write-downs and costs of exiting the country, Bloomberg estimated citing unnamed sources close to consultations of the banking CFOs and regulators.

Western banks have $86bn of exposure to Russia and are setting aside more than $10bn in expectation of losses on their ventures, according to Financial Times calculations.

All banks in Russia face huge problems following the imposition of Western sanctions, the collapse in the value of the ruble, and the country’s looming economic crisis.

UniCredit, Russia’s tenth-largest bank in terms of capital and thirteenth-largest in terms of assets, said in March it is considering exiting Russia. This week it booked an additional provision reserve of €1.3bn for its Russian subsidiary in its 1Q21 results. It reported a €1.9bn ($2bn) potential exposure related to Russia. In the worst-case scenario, the Italian lender has warned it could face a loss of €5.3bn if its entire Russian business was wiped out, down from a previous estimate of €7.4bn. This includes derivatives and its €4.5bn cross-border exposure to Russian clients, net of guarantees worth about €1bn.

UniCredit had been examining an acquisition of Russian  government-owned lender Otkritie before the invasion but has since scrapped those plans.

French financial group Societe Generale is rushing to sell its Russian subsidiary Rosbank before it is too late due to any potential new sanctions, and is ready to sell the country’s 11th largest bank for as little as 0.2-0.3x book value. Societe General absorbed about a €3bn loss on the exit from Russia and the heavily discounted sale of its fully owned subsidiary Rosbank. This week it said it had set aside a further €561mn of provisions for the first quarter, mainly tied to the war in Ukraine. SocGen said it had €18.6bn of exposure at the end of last year. 

French bank Crédit Agricole on this week announced a €389mn provision for its Russian exposure and said it was also writing down €195mn for the total equity value of its Ukrainian business. It had an exposure of €4.6bn to Russia.

Credit Suisse last month said it had incurred a loss of SFr206mn from the Ukraine war in Q1, while UBS said it had costs of SFr100mn related to the war, according to the FT.

Raiffeisen Bank, which claims to be the largest foreign bank in Russia by assets,  only made €319mn in provisions for Q1, mostly related to the Ukraine war, despite its €24.2bn exposure. It said it continues to evaluate its options for its future in Russia.

"In Russia, we have largely suspended our new business since the start of the war," CEO Johann Strobl said this week in the announcement of the bank's Q1 results. "We are systematically pressing ahead with the evaluation of our strategic options, which include an orderly withdrawal from Russia."