By: Ken Chase
More than four weeks since the Russian Federation launched its invasion into Ukraine, the world’s banks are continuing to adapt to the reality of yet another European war. Many of the largest financial institutions have been feverishly working to unwind their business activities in Russia, to limit their exposure to potential losses due to global sanctions.
In early March, The U.S., Europe, and Canada jointly agreed to sever several Russian banks from the SWIFT network, denying those entities the easy access to international markets that SWIFT provides. When that failed to deter Russian attacks, they expanded the sanctions with an even broader SWIFT ban. Meanwhile, the Ukrainian government has called for Russia to be completely banned from the network, a move that many experts fear could severely rattle global markets.
These and other sanctions have forced the world’s banks to rethink their involvement with Russia and its economy. Many of the largest banks remain overexposed in Russia. For example, U.S. bank exposure amounts to roughly $14.7 billion, according to Bank of International Settlements data. That exposure includes Citigroup’s $9.8 billion and Goldman Sachs’ $650 million. Goldman and JPMorgan became the first U.S. banks to move to divest from Russia after the invasion. Citigroup has been expediting its plans to withdraw from the Russian economy as well.
Austrian bank exposure remains at about 17.5 billion, while French and Italian bank exposure is a combined $50 billion. Banks like Raiffeisen Bank International, Societe Generale, and UniCredit have been openly contemplating an exit from Russian markets, even as they continue invasion to work to reduce their exposure and minimize and financial losses.
As Fortune recently reported, Russian businesses and related entities owe Western banks about $121 billion. As a result, many financial firms are cautiously managing their separation from Russian interests, given the potential for sizable losses. BlackRock is just one notable example of just how large those losses could be. The company’s funds have reportedly suffered a $17 billion loss, in part due to the recent collapse in the value of Russian exchange-traded funds.
Adding to the financial uncertainty is the fact that Russian President Vladimir Putin has reportedly given his nation’s banks a green light to seize any assets foreign companies leave behind during their divestment from Russia’s economy. The country’s Prime Minister, Mikhail Mishustin has claimed that a new bill has been created to respond to foreign enterprises fleeing the country:
“If foreign owners close the company unreasonably, then in such cases the government proposes to introduce external administration. Depending on the decision of the owner, it will determine the future fate of the enterprise.”
Perhaps even more ominous is the risk that Russia’s economy could collapse and result in the country defaulting on billions of dollars owed to banks and other foreign entities. The country’s estimated foreign debt is around $490 billion, $80 billion of which is believed to be due over the course of the next year. Given the current economic sanctions and ongoing international divestment, it is likely that any new economic crisis in Russia could be even worse than what that country experienced in the wake of its 1998 default.