UniCredit warns write-off of Russian business could cost €7.4bn

Milan/London  — Italy’s UniCredit and France’s BNP Paribas were the latest banks to set out their Russian exposures, warning of billions of euros in potential costs from the financial fallout from Moscow’s invasion of Ukraine amid a wider sector rebound on Wednesday.

Banks, insurers and asset managers have been scrambling to distance themselves from Russia and assess their exposures after Moscow was hit with heavy sanctions by the West in the wake of the invasion of its neighbour, which began late in February.

BNP Paribas has also cut off its Russia-based workforce from its internal computer systems as it seeks to bolster its defences against any potential cyberattack, a source with direct knowledge of the matter said.

The French lender is believed to be the first major bank to have excluded staff in Moscow from its IT networks.

The EU agreed new sanctions against Russia and its ally Belarus on Wednesday that blacklist 14 more oligarchs and freezes relations with Belarus’ central bank and three top lenders there.

Financial information provider S&P Global added to the growing list of companies to suspend commercial operations in Russia, a day after Britain’s London Stock Exchange Group stopped some services in the country.

Italy’s second-biggest bank, UniCredit, said late on Tuesday that a full write-off of its Russian business would cost it about €7.4bn.

BNP Paribas said it had a total exposure of about €3bn to Russia and Ukraine, which it said was relatively limited.

Shares in Europe’s major financial firms have fallen since Russia’s invasion of Ukraine, as investors took fright at the links of some to Russia and braced for a potential broader economic slowdown.

UniCredit said a worst-case scenario would knock two percentage points off its capital ratio, but nonetheless stuck with its dividends and share buyback plans.

Shares in UniCredit leapt by as much as 15% and BNP Paribas 10%, with the wider Stoxx index of European banks up 7% on the day, staging a partial rebound after recent falls.

Analysts suggested the rebound across European equity markets on Wednesday could be a temporary relief rally.

The European bank index has fallen 15% since the invasion began on February 24, against only a 5% fall in the benchmark Stoxx index.

Europe’s struggling banks entered 2022 on a wave of optimism not seen in more than a decade, but investors and analysts have warned the Ukraine crisis may have knocked that flat.

Credit Suisse economists slashed their forecast for European growth on Wednesday and now expect the region to expand just 1% this year as the Ukraine crisis turbocharges commodities prices and disrupts supply chains.

Among European banks, Austria’s Raiffeisen Bank International and France’s Societe Generale have the largest Russian exposure. Shares in both rallied strongly on the day amid the wider rebound.

Pulling back 

S&P Global joined rival credit ratings agencies Moody’s Investors Service and Fitch in suspending commercial operations in Russia.

The move comes as the London Stock Exchange suspended from midday the provision in Russia of products containing news and commentary, as well as all new sales of products and services. LSE  said data products will continue to be accessible by currently serviced customers.

LSE distributes news and commentary from Reuters as part of its products. Thomson Reuters, the parent of Reuters News, holds a minority stake in the group.

A new Russian law makes it possible to jail journalists who report any event that could discredit the Russian military.

Two of the world’s largest insurers, British-based Prudential and Legal & General said on Wednesday they each had very small exposures to Russia and no plans to increase them.

Financial firms have also been bracing for other potential risks from the war, with regulators working closely with companies to prepare defences against the threat of cyberattacks.

Swiss stock exchange operator SIX said it had seen an increase in hacker attacks around the start of the invasion but said this had since subsided.

Reuters