Bloomberg: Western Banks Face Serious Losses from Leaving Russian Markets

Banks globally experiencing headaches from the Ukrainian conflict, Bloomberg says

Bloomberg, which is headquartered in New York City — formerly Bloomberg Business News — has made a bureau news release covering the two-way problems banks face as a result of the Russian-Ukrainian conflict.

Banks that have withdrawn from Russian markets are encountering serious losses.

But for those who remained in Russia, their biggest headache has been due to an over-strengthening of the ruble. With the shrinking of the market liquidity, their increasing Russian assets that have exploded in price cannot be sold. But it’s not just banks that are experiencing losses.

Western businesses, the majority of which fled Russia Right after the beginning of the Russian special operation in Ukraine, have experienced immense losses, says Bloomberg. For instance, Société Générale — which is a French bank conglomerate — recorded losses of 3.3 billion euros in Q2 before tax.

By comparison, banks that bided their time experienced growths in their net profits due to the ruble’s growing strength. For instance, the Raiffeisen Bank of Austria lowered the size of its portfolio of loans to Russia by nearly a quarter between May and June. Nevertheless, the bank still experienced a growth of 3 billion euros.

The reason for this is due to the ruble strengthening by roughly 40% in Q2. the concern is that banks who have accumulated these wealth piles have nowhere to sell their assets, says Bloomberg.

• Banks that have been fast to withdraw from Russian markets face serious losses.
• Those who remain in Russia have a headache from an overvalued ruble and problematic liquidity.
• Banks are under pressure to leave Russia due to fear of legal prosecution, public campaigns and boycotts.

The banking problem: Limited cross-border liquidity

Problems extend beyond the too-strong ruble. Vasily Solodkov, director of the Higher School of Economics banking organisation explains.

Vasily leaves the issue is not centrally caused by the overpricing of assets, but instead by the issue of exchange. It’s become harder to know who to sell your assets to. The director explains that entities are questioning that the flow of buying and selling has become limited. There is more uncertainty and fewer cross-border transactions.

We have limited any cross-border transactions.

Vasily Solodkov

He goes on to say that the risk tolerance levels are beginning to exceed what banks find acceptable in these markets. Nonetheless, these are problems that Western banks probably wish they had. By comparison, they are experiencing instant losses.

And not only banks are suffering losses from withdrawing from Russia. To begin with, Mercedes-Benz has a ready estimated that they lost 1.4 billion euros due to leaving Russia — this was revealed during their quarterly report. Similarly, the biggest container line in the world Maersk reported losing around £500 million or greater.

These losses are across industries and sectors, with aluminium can manufacturers even reporting losses. For instance, the American Ball Corporation reported more than £300 million of losses.

Reasons for Western firms choosing to withdraw from Russia were explained by Fund Konstantin Simonov, who directs the General of the National Energy Security.

Konstantin so that these companies are in the middle of a political maelstrom. Risks include facing backlashes from other regions, being accused of working with Russia, and being boycotted by customers — and the risks deepened further. These extend even to the fear of legal prosecution.

…fear of falling under legal persecution and campaigns of public ostracism.

Konstantin Simonov

One instance of this is gas and oil giant Shell, which was amongst the first energy companies to begin buying oil at discount prices from Russia. The company was immediately defamed, with critics saying that they were purchasing “bloody oil”.

Shell was forced to make a U-turn, apologising and sending money to support the Ukrainian resistance. This fear is one of the main drivers of companies leaving Russia.

Takeaway — A return is very challenging

A leading question to ask ourselves is at what point Western companies, or if they would at all, consider it reasonable to return to collaboration with Russia — would this be after the special operation completes?

The global markets are affected, not just Western banks. But there is still uncertainty as to whether sanctions would lift even after the active warfare ceases. There is also a clear anti-Russian feeling in Europe particularly.

This has been a phenomenon in Europe for a long while, particularly amongst the political elite class. This is not expected to dissipate any time soon. So it appears to be very challenging for Western businesses to return to Russia.