Global banks grapple with Ukraine crisis as shares slump

FRANKFURT (REUTERS) - Financial firms from Frankfurt to Wall Street suffered heavy share price falls on Thursday (Feb 24) as they grappled with the impact of Russia's invasion of Ukraine, digested newly imposed sanctions and rushed to advise clients on how to respond.

While many bankers have played down the importance of Russia to their operations, it is the European Union's fifth-largest trading partner, with a 5 per cent share of trade, data shows. US trade with Russia is less than 1 per cent of its total.

Deutsche Bank, Germany's largest lender, said it had contingency plans in place as US and European officials imposed further sanctions on Moscow.

British bank Lloyds said it was on "heightened alert" for cyber attacks, while German insurance and asset management giant Allianz said that it had frozen its Russian government bond exposure.

While US banks were well-prepared for the measures announced so far over Russia's aggression towards Ukraine, they worried that new measures could increase the cost and complexity of enforcing them. Financial institutions are the primary enforcers of sanctions.

"Any time there is any type of financial strain across borders, financial companies, particularly banks, tend to be in the centre of it because they have businesses in all those areas," said Harris Financial Group managing partner Jamie Cox.

The United States has imposed fresh sanctions against major Russian banks, including the country's two largest lenders, Sberbank and VTB, aimed at limiting Russian access to the US financial system.

Shares in Sberbank and VTB fell by 37 per cent and 41 per cent respectively.

"These sanctions target Russia's domestic financial system, causing bank runs and forcing Russia's central bank to continue hiking rates," said Mr Clay Lowery, executive vice-president at the Institute of International Finance (IIF), the largest international banking group.

Shares of leading banks plunged, with the European banking sector closed down 8 per cent, steeper than the 3.3 per cent fall for the Euro Stoxx index.

In the US, the S&P 500 banking index, closed down 2.5 per cent. Citigroup, which has the biggest Russian exposure among US banks, fell 4 per cent.

Some banks organised calls for clients with experts to analyse the situation, invitations seen by Reuters showed, with JPMorgan scheduling one with Mr Michael Singh, senior fellow at the Washington Institute for Near East Policy.

Goldman Sachs ran a call for its private wealth clients hosted by Mr Alex Younger, a former chief of British foreign intelligence service MI6, who is now an employee of the firm.

European banks are most exposed to Russia, especially in France, Italy and Germany, far outstripping US banks' exposure, data from the Bank for International Settlements shows.

And those banks with significant operations in Russia were hardest hit after its forces invaded Ukraine by land, air and sea, with the biggest attack by one state against another in Europe since World War II.

Austria's Raiffeisen Bank International fell 23 per cent, while shares in Societe Generale lost 12 per cent, although the French bank said its Russian unit Rosbank continued to operate normally.

UniCredit shares fell 13.5 per cent and triggered an automatic trading suspension, although the Italian bank said its Russia "exposures are highly covered".

Shares in Deutsche Bank, which like many lenders in recent years has reduced its presence in Russia as sanctions have expanded, were down 11 per cent, the biggest decline among German blue chips.

EU leaders will impose new sanctions on Russia, freezing its assets, halting access of its banks to the European financial market and targeting "Kremlin interests" over its "barbaric attack", senior officials said.

But in what will be a relief to Europe's banks, the EU is unlikely at this stage to take steps to cut off Russia from the Swift global interbank payments system, several EU sources said.

Some top bankers have been more concerned about the potential secondary effects of the crisis.

The boss of HSBC, one of Europe's largest banks, said this week that "wider contagion" for global markets was a concern, even if its direct exposure was limited.