UniCredit and Citigroup are considering asset swaps with Russian financial institutions as western banks leave the country to avoid large writedowns on their businesses, according to people who know their plans.
The banks are among a small number of western lenders with a significant presence in Russia. Moscow’s invasion of Ukraine and subsequent international sanctions have forced foreign bank executives to consider turning their backs on the country.
An analysis conducted by the Financial Times last week showed that western banks were already preparing for more than $10 billion in losses from their Russian operations.
UniCredit has received several offers from Russian financial institutions to buy its local subsidiary since its chief executive Andrea Orcel said in March that it was considering pulling out of the country, according to people familiar with the matter.
One bid came from the Interros Group, the investment firm owned by Vladimir Potanin, one of Russia’s richest men and an oligarch who has not been sanctioned by the US, Britain or the EU, people with knowledge of the approach say. But UniCredit flatly rejected the offer, they added.
However, the Italian bank has continued to talk about selling its Russian operations to a handful of unsanctioned financial institutions – some of whom are trying to expand into Russian banking – although no deal has been finalised, people familiar with the talks said.
Russia’s banking sector is in a period of rapid consolidation, prompted by Western companies trying to exit the market and domestic companies suffering under the weight of foreign sanctions.
Interros has already taken several deals, including agreeing to buy French bank Société Générale’s subsidiary Rosbank and a 35% stake in Russian businessman Oleg Tinkov’s highly rated fintech TCS.
Meanwhile, VTB, Russia’s second largest bank, has received support from the central bank to take over state-owned Otkritie and RNCB. All three have been hit by Western sanctions.
SocGen, which first came to Russia 150 years ago, is at risk of losing €3.1 billion in the Rosbank sale.
UniCredit rejected the Interros deal to avoid such a blow, people briefed on the approach said. “Why should we sell the business for only one rouble?” said one of the people.
The Italian bank has announced it could lose 5.3 billion euros if its entire Russia business were wiped out.
Citi, which first announced last year that it was attempting to sell its Russian retail business, and UniCredit have both been exploring deals in which they would swap their Russian operations for the local lender’s overseas operations, according to people familiar with the plans to have.
According to a person briefed on the arrangements, UniCredit has been working on deals with unsanctioned banks in which it would swap its Russian loan books for the counterparty’s foreign loan portfolios.
This was one of the factors that allowed the bank to reduce its net cross-border exposure to Russia from €4.5 billion in early March to €3.2 billion at the end of April.
However, as more and more Russian banks have been hit by sanctions in recent weeks, these options have become more difficult.
VTB and Sberbank, the country’s two largest lenders, which account for half of the bank’s assets, were the only two Russian banks with significant foreign operations. But both have been placed on western sanctions lists in the past two months and are in the process of closing their European businesses.
Citi prefers a sale to an unsanctioned entity rather than an asset swap. It is in “several talks” with mid-sized Russian banks to sell its consumers and part of its operations in the country, a person familiar with the matter said.
The US lender declined to comment, citing CEO Jane Fraser’s comments earlier this month when she said she was in “active dialogue” with potential buyers of its Russian operations.
Western banks have also been discussing with regulators the possibility of obtaining special spin-offs as a last resort to close deals with sanctioned individuals and companies.
“If you can’t sell to a sanctioned person, what’s the only option? You go and talk to the sanctions people,” said a banker involved in plans for an international divestment.
“Basically, they were telling us that we could sell to a certain type of sanctioned person or company. We probably won’t do it, but we’ve had the talks, we have the cover to talk things through, we need to explore all the options.”
UniCredit and Interros declined to comment.
Additional reporting by Nastassia Astrasheuskaya in Riga