After two days of sharp losses, European banks fell on Wednesday. They were at their lowest level in almost 11 months as the Ukraine crisis drags on and after Sberbank, the European arm of Russia was forced to close.
After dropping 5.6% Tuesday and 4.5% Monday, an index of the top European bank stocks fell 1.7% on Wednesday. It fell 27% from its April highs, and it is now at its lowest level since April.
The backdrop for Wednesday’s trading is Russia’s insistence on continuing its offensive. As U.S. President Joe Biden warned Vladimir Putin, the Russian leader “has not a clue what’s ahead”, Wednesday’s trading took place against this background. Russia describes its actions in Ukraine as a “special operation”.
Austria’s Raiffeisen Bank International is among the worst-hit bank shares this week, according to two sources with knowledge. This move would make it the first European bank that has done so since the invasion of Ukraine by Moscow.
Raiffeisen shares were half their value a month ago but are now down 5.1%.
Officials are trying to reassure the markets. In an email reply to Reuters, Hungary’s central banking said that the OTP Bank in Hungary, central Europe’s largest independent lender and capital, is in a good position and can withstand any market shocks in Russia or Ukraine.
RUN-ON DEPOSITS
The European arm of Russia’s largest lender Sberbank was shut down overnight by the European Central Bank. It had been warned that it would fail due to a run-on deposits following the invasion of Ukraine.
Sberbank reported record profits for 2021 and said it was leaving Europe because its subsidiaries faced large cash outflows, as well as threats to employees’ safety.
Sberbank was active in Austria, Croatia and Germany, as well as other countries. It had European assets of 13 billion euros ($14.41 trillion) by Dec 31, 2020.
BaFin, Germany’s market regulator, is closely watching the European branch of Russia’s VTB Bank. It was not accepting new clients. The assets of the bank, which is based in Frankfurt, totalled 8.1 billion euros at the end of 2020.
Russia announced Tuesday that it would temporarily restrict foreigners who want to exit Russia’s assets. This was in response to investor withdrawals triggered by crippling Western sanctions following the invasion of Ukraine.
Investors are also shedding assets. Chief executive Amanda Blanc stated Wednesday that Aviva’s fund management unit would sell its Russian exposure “as soon and practically possible”.
Financial institutions are trying to adapt to the changing situation.
Two sources close to the matter confirmed to Reuters that Dubai’s Mashreqbank had stopped lending to Russian banks. It is now reviewing its exposure to Russia.
This is the first time that a Middle East bank has stopped its ties with Russia. It also highlights the growing global anxiety about Western sanctions.
France’s BNP Paris said that it was working to keep its activities at Ukrsibbank in Ukraine, which employs close to 5,000 people.
According to a member of the board, a task force from Germany’s Commerzbank that has a Russian subsidiary is meeting multiple times per day.
Hiscox CEO Aki Hussain stated that the Lloyd’s of London insurance provided coverage for international businesses in Ukraine.
“We provide security for those offices and some people. We have been working closely with our customers over the past eight weeks. Effectively, we have been helping them evacuate their staff and leave the country to the extent that they wish.
