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Bank suspension, deals fallout fears grow

The London Stock Exchange Group (LSE) suspended Russian bank VTB Capital’s membership in response to UK sanctions on Russia. “With immediate effect, the London Stock Exchange has suspended VTB Capital PLC’s membership'', the LSE said in a notice to the firm, which has an office in London and is headquartered in St Petersburg in Russia.

The suspension comes after the UK banned Russia from accessing sterling clearing and payment systems, without which it cannot trade in pound-denominated assets. VTB Bank is Russia’s second-largest financial institution, owning nearly 20pc of banking assets in Russia, according to the US treasury. VTB earlier this month reported assets of some £190 bn in 2021.

Around half of Russia’s trade is currently in US dollars and British pounds, the UK Prime Minister told Parliament recently, as he announced other sanctions including freezing Russian state-owned bank VTB’s assets. VTB Capital was contacted for comment. It left two statements on its website, from its London-based firm VTB Capital and VTB.

In the first, VTB Capital said its goals have always been about delivering high-quality services for clients and partners, in Russia and abroad. The firm said: “We have meticulously studied the possible negative scenarios for each business line, product and service and have developed an action plan that minimises the negative consequences.” The second statement noted VTB is “one of Russia’s systemically important banks with a broad international presence and a stable financial position. Sanctions have been a reality for us over the past few years, and another round of politically motivated anti-Russian sanctions came as no surprise.”

It added: “We have had time to learn the lessons and prepare for the most severe scenario, we have worked through several plans to counter the sanctions in ways which minimise the negative consequences for our clients.” On the matter of deals – bond markets have been affected as a result of Russia’s war on Ukraine, is likely to put a stop on initial public offerings (IPO) and is almost certain to lose large M&A deals as concerns rise about the knock-on effects. However, if international banks are frozen out of deals with Russian companies, the hit to revenues for dealmakers is unlikely to be severe.

Investment banks made only $417m in fees from deals with Russian companies in 2021, according to data provider Dealogic. This is the highest figure since 2013, but so little compared to the $130bn banks made globally last year.

JPMorgan, which has around 160 employees in the country, was the only global bank to feature in a top four fee ranking for Russia from 2017- 2022, making $154m over that period and holding second place. VTB Capital, Sberbank and Gazprombank – all of which are majority owned by the Russian government – were the other banks in the top four. Banks worked on $20.8 bn of debt capital markets deals in 2021 – the most since 2013.

Dealmakers might not be too worried over the impact of the war, on deals from Russian firms, but there are wider implications. The value of IPOs globally had already fallen by 70pc so far this year, according to Dealogic, because of volatile markets and others are likely to be put on hold.

But bankers are also concerned the record M&A boom could be hit by the war. Dealmakers have said there was a potential mismatch between buyers asking for a pause in deals and sellers trying to push through prices modelled before the crisis. However, some remained optimistic. Frank Aquila, a partner in M&A at law firm Sullivan & Cromwell, said: “Unless it becomes a wider conflict, it should not have a significant impact on M&A activity.

Andy Jalil

The writer is our foreign correspondent based in the UK

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