Raiffeisen leads decline in European banks as Russian sanctions hit

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Shares of European banks with ties to Russia suffered the biggest declines on stock exchanges in the region on Monday, as Western countries stepped up financial sanctions against Moscow following the invasion of Ukraine.

Austria’s Raiffeisen Bank International led the declines with a drop of up to 18.5% after the opening in Vienna amid fears that sanctions could hit one of the lender’s most profitable units. Societe Generale SA in France and UniCredit SpA in Italy were both down around 10%. All three have significant operations in Russia.

Read more: Russia hikes rates to highest since 2003, adds capital controls

Lenders are grappling with a rapidly changing scenario after the US and EU stepped up measures against Russia by blocking some of the domestic banks from the international SWIFT transaction messaging system and targeting foreign exchange reserves of the central bank. The ruble sank at the open on Monday, prompting emergency interest rate hikes.

The Stoxx 600 Europe banks index was down 6% at 10:48 a.m. in Paris. The overall Stoxx 600 index fell 1.7%.

Raiffeisen said it could not yet estimate the financial effect of the sanctions as they were extended daily, according to a statement on Monday. The lender said the measures had a “harsh and far-reaching” impact on financial markets and the real economy.

The bank has about 11.6 billion euros of its loans in Russia, or 11% of its total, and makes more than 30% of its pre-tax profit there, according to Bloomberg Intelligence.

“The exclusion of Russian banks from international payments means that these financial institutions can no longer repay their debts to their European creditors,” said VP Bank chief economist Thomas Gitzel. “For the EU as a whole, Russia’s debts are manageable. Claims amount to approximately US$75 billion, or 0.7% of total bank claims. French, Italian and Austrian banks have the highest absolute claims.

The European Central Bank last week asked lenders active in Russia to report on the risks they face in a range of diplomatic and military scenarios related to Moscow’s tensions with the West over Ukraine, according to people familiar with the matter.

Read more: ECB tests banks’ exposure to Russia as Putin pushes Ukraine

In January, UniCredit, Italy’s second-biggest bank, walked away from a possible deal to take over Russian lender Otkritie Bank FC, with chief executive Andrea Orcel signaling that military buildup in the region was a factor in the decision. UniCredit already had some 4,000 employees in Russia and reported that it was generally engaged in its business there.

BNP Paribas, which was down nearly 9%, issued a statement on Monday valuing its exposure to Russia and Ukraine at around 500 million euros ($559 million), and said it was securing its business there. with “a significant level of guarantees and collateral”.

Analysts at JPMorgan Chase & Co said bank stocks are unlikely to perform as long as the Ukraine crisis dominates the headlines.

“Banks have returned some of their strong rally over the past two weeks, but our banking analysts believe exposure to Russia and Ukraine is very manageable, representing less than 1% of book value,” the strategists led by Mislav Matejka said in a statement. note on Monday.

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