EXCLUSIVE Regulators brace for possible VTB shutdown in Europe – sources

An employee poses for a picture while demonstrating a payment card at a branch of VTB bank in Moscow, Russia May 30, 2019. REUTERS/Evgenia Novozhenina

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FRANKFURT, March 3 (Reuters) – Regulators are bracing for a possible shutdown of the European branch of Russia’s second-biggest bank, VTB Bank (VTBR.MM), amid growing concerns over the impact of sanctions on the bank following the invasion of Ukraine, according to two sources familiar with the matter.

VTB Bank’s European operations could be shut down within days by regulators in Germany, where it mainly operates on the continent, a person with direct knowledge of the situation said.

The second source said BaFin, the German regulator, was on “high alert”, monitoring the situation closely and ready to act if necessary although no final decision had been made.

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VTB, which did not respond to a request for comment from Reuters, said on its European website on Thursday that it was in close consultation with BaFin. He said the bank was stable and fully operational.

Russia’s finance ministry in Moscow and embassy officials in Berlin did not respond to requests for comment on VTB’s European division.

BaFin declined to comment.

The London Stock Exchange Group’s clearing arm, LCH, announced on Thursday that it had placed VTB Capital, the trading arm of VTB Bank, in default as a clearing member. Read more

As of Friday, the exchange had suspended VTB Capital’s membership, meaning it could no longer buy and sell stocks listed on the platform.

A spokesman for the Bundesbank, which shares responsibility for banking supervision, declined to comment on a specific bank when asked about Russian banks in Germany, but said he was in close contact with BaFin in this regard. “If necessary, we will take appropriate action,” the spokesperson added.

If regulators decide to shut down VTB in Europe, it would mark the second failure of a major Russian bank in the region as Western sanctions squeeze the country’s lenders. Most of the European operations of Sberbank, Russia’s largest bank, closed earlier this week. Read more

VTB, which holds more than €4 billion in deposits in Europe, mostly in Germany, would be covered by Berlin’s deposit protection scheme, which protects savers up to €100,000.

BaFin said VTB would not accept new customers and existing account holders could access their money.

Supervisors, however, have been watching an outflow of deposits since Russia invaded Ukraine, a source familiar with the matter said. The person added that the sanctions made it difficult for the bank to recapitalize to meet the demands.

VTB has become one of the main targets of economic sanctions against Moscow in recent days in the aftermath of Russia’s invasion of Ukraine. Read more

On Wednesday, it was kicked out of the SWIFT messaging system that underpins global transactions.

This follows US sanctions last week that effectively kicked the bank out of the US financial system, banned trade with Americans and froze its US assets.

A European Union official, asking not to be named, said VTB was in a similar position to Sberbank because both had been sanctioned and had a tainted reputation in Europe.

VTB held about 8 billion euros in assets in Europe, according to its latest quarterly statements. Its European customers include 600 companies, 150 Russian financial institutions and 160,000 private customers, according to its website.

In recent years, ordinary Germans and local governments have also placed their money with VTB, in part because it was one of the few banks that did not charge negative interest rates.

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Additional reporting by Frank Siebelt in Frankfurt and Jan Strupczewski in Brussels; Editing by Paritosh Bansal, Edward Tobin and Jane Merriman

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Mary I. Bruner