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Some Western banks are lobbying against EU plans to allocate up to €3bn this year from profits generated by frozen Russian assets to Ukraine, fearing potential litigation and an erosion of trust in the banking system, as reported by Reuters citing anonymous sources familiar with the matter.
Leaders of the EU’s 27 member countries agreed at a summit in Brussels yesterday to move ahead with work on the plan, which could include using up to 90 per cent of the proceeds to buy arms for Ukraine’s overstretched military.
The sources, who informed Reuters that they were sharing their concerns with UK and eurozone policymakers, worry about the potential liability of banks if they become involved in transfers to Ukraine. Additionally, they are concerned about the prospect of the EU plan being extended to include assets held by the banks for sanctioned individuals and companies.
Moscow has consistently warned of legal retaliation should its assets or income be expropriated. Kremlin spokesman Dmitry Peskov said on Wednesday that the EU proposal would undermine international law and could lead to prolonged legal disputes.
One source told Reuters their bank was seeking legal advice on indemnities it could secure to participate in the EU’s plan. However, legal experts have cautioned that indemnities may not be enough to prevent potential litigation from Russia.
Oliver Browne, litigation and arbitration partner at Paul Hastings, told Reuters: “There isn’t an immediately obvious way for banks to insulate themselves comprehensively from future challenges and clawback actions.
“Prudent financial institutions need to anticipate the likely future costs of the inevitable disputes that will come.”
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The US Federal Deposit Insurance Corporation has proposed heightened scrutiny for bank mergers that could result in institutions with more than $100bn in assets. The FDIC’s board of directors voted 3-2 on Thursday to issue the proposal, which is subject to a 60-day consultation period.
The proposed guidelines aim to address concerns about the risks associated with rapid bank growth, particularly in light of several high-profile US bank failures last year. Under these guidelines, banks with assets exceeding $50bn would undergo FDIC hearings to evaluate the public interest implications of a merger. Additionally, mergers exceeding $100bn in combined assets would face increased scrutiny to ensure they do not pose a systemic risk to the financial system.
The proposal has faced criticism from the FDIC’s Republican-affiliated board members. They contend that the new rules would make merger processes less predictable and reinforce what they say is an institutional bias against bank mergers.
Jonathan McKernan, one of the Republican members, expressed concerns that imposing additional hurdles for mergers leading to banks with more than $100bn in assets could discourage the emergence of new competitors against the major US banks.
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Santander announced today that its shareholders are set to receive more than €6bn in dividends and buybacks in 2024 following an increase of around 9 per cent in its income for the first quarter of this year. According to Reuters, the figure implies that the bank is on track to meet its full-year targets of a net profit exceeding €12bn.
Santander is targeting continued growth in revenue and profitability this year following its record net income of €11.1bn in 2023.
In a statement, executive chair Ana Botín said: “2024 has started with excellent business and commercial dynamics.” She cited solid performance in South America and Spain, and business improvements in Europe and the US as the main drivers of its results. In addition, she expects the bank to reach a 16 per cent return on tangible equity, a key metric of profitability, and has previously stated her intention to pay out 50 per cent of profits to shareholders.
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HSBC is reportedly selling its Russian unit to Expobank at a significantly reduced price of just $22mn, according to Russian media outlet Frank Media, citing sources familiar with the matter. The sale, if finalised, would represent a discount of 90 per cent, potentially setting a record discount for a deal of this scale. HSBC has been contacted for comment.
In June 2022, HSBC announced its agreement to sell a 100 per cent stake in its Russian unit to privately-owned Expobank. Approval for the sale was granted by Russian President Vladimir Putin last month.
Press reports suggest that Russia has been insisting on larger discounts for foreign companies exiting its market. Moscow has been steadily tightening exit requirements since western companies began leaving the country following its invasion of Ukraine.
