Sberbank Europe Unravels After Russia Sanctions Cause Bank Run

(Bloomberg) — Europe is carving up Sberbank of Russia PJSC’s business in the region after sanctions sparked by President Vladimir Putin’s invasion of Ukraine prompted a run on its local deposits.

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Austria-based Sberbank Europe AG will be liquidated under local insolvency procedures while all shares in its Croatian and Slovenian subsidiaries will be transferred to other firms in those countries, according to the Single Resolution Board, which handles failing European lenders. Shares in the parent company listed in London were down 90% on Wednesday, with Russian stock trading remaining closed.

Read More: Sberbank Slides 90% in London With Local Market Still Closed

The U.S. and European Union are ramping up measures against Russia by blocking some of the nation’s banks from various parts of the global financial system. Already last week, the U.S. said it was sanctioning five of Russia’s largest lenders, including Sberbank and VTB Bank PJSC. While Sberbank in Europe accounts for only a fraction of the lender’s overall business, its shuttering is a further blow to Russia.

“I think it’s fair to say that it was a bank run that was really triggered by the heightened geopolitical risk and the sanctions kicking in,” Elke Koenig, who leads the SRB, told reporters on Wednesday. “It’s not an insolvency due to negative equity, it’s an insolvency due to lack of liquidity.”

The SRB on Monday had suspended most payments at three of the bank’s divisions after the European Central Bank determined that Sberbank Europe and the subsidiaries in Croatia and Slovenia probably won’t be able to pay their debts or other liabilities.

Hrvatska Postanska Banka, the only major bank in Croatia that is state-owned, will acquire Sberbank’s business in that country while Nova Ljubljanska Banka assumes the Slovenia operations. Bloomberg reported their offers earlier on Tuesday.

The units in the two countries will open on Wednesday “as normal with no disruption to depositors or clients,” the SRB said. “They are now part of well-established, robust and stable banking groups.”

Austria’s financial markets regulator said it has prohibited Sberbank Europe from continuing to do business. That triggers compensation for clients, giving the country’s guarantee system 10 banking days to pay out as much as 100,000 euros ($111,260) per depositor.

Deposits Covered

Sberbank decided to withdraw from the European market after facing a run on deposits, Russia’s largest lender said in a statement on its website. The bank wasn’t able to supply liquidity to its subsidiaries because of an order from the Russian central bank, yet local assets are sufficient to make payouts to all depositors, Sberbank said.

Koenig confirmed that, saying she is “very confident” that Sberbank Europe’s assets will cover its deposits, although it’s still unclear whether they will suffice for all its liabilities. Sberbank Europe previously reported 13.6 billion euros of assets.

Austria’s deposit insurance fund, which is backed by the country’s banks, said on Wednesday that it covers about 913 million euros out of 1 billion euros in total deposits at the local unit. Sberbank’s Vienna-based division has about 35,000 private depositors who are almost exclusively based in Germany, yet are protected by Austrian system.

Including Sberbank, the seven-year-old SRB has handled the failure of six banks, the most recent of which was in 2019. Most of those cases saw the lenders wound up under national insolvency law. The last time the SRB took a resolution decision, as it did with Sberbank’s Slovenian and Croatian subsidiaries, was in 2017 when it forced losses on Banco Popular Espanol SA investors and transferred the lender to larger rival Banco Santander SA.

The Brussels-based regulator oversees lenders with cross-border businesses and other significant banks, leaving the failure of smaller banks, such as Greensill Bank AG in Germany last year, in the hands of national authorities.

The European Commission said in a separate statement that Czech authorities have decided to close and wind down Sberbank’s unit in that country, with depositors eligible for the same statutory compensation as in Austria. Regulators in Hungary also ordered the wind-down of Sberbank’s unit in Budapest.

VTB Bank OJSC, a Russian lender which has come under stricter sanctions than Sberbank, isn’t accepting any new clients at its German unit, but existing clients that don’t fall under sanctions can access their deposits, German regulator BaFin said earlier this week.

“For the time being, the financial system in Europe definitely is a stable financial system, but of course you never know what the future holds,” said Koenig. “But I would not consider anything rightly imminent from our side. That clearly banks that have a Russian ownership are under stress, think is needless to say.”

(Updates with previous resolution action in 12th paragraph)

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