European and US bank stocks recoup some losses ahead of new EU sanctions

  • EU plans new sanctions against Russian banks
  • EU assesses impact of Russia’s exclusion from SWIFT
  • Stocks recover some of Thursday’s steep falls

FRANKFURT/LONDON, Feb 25 (Reuters) – Shares of European and U.S. banks recouped some of the previous day’s heavy losses on Friday as the sector began to face a series of sanctions unveiled this week in retaliation for the invasion Russian from Ukraine.

The actions got off to a nervous start as missiles pounded the Ukrainian capital and President Volodymyr Zelenskiy pleaded with the international community to do more, saying the sanctions announced so far were not enough. Read more

Investors have been very vigilant about sanctions against Russia for fear of increasing complexity and compliance risks for global banks. But many US and European industry executives say they have already reduced their exposure to Russia.

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After early losses, major European banks then edged higher, with a European banking sector index (.SX7P) up 4.27% by mid-afternoon, after falling 8% on Thursday.

Shares of major US banks also closed, with JPMorgan Chase & Co (JPM.N), Goldman Sachs Group Inc (GS.N), Bank of America Corp (BAC.N), Citigroup Inc (CN) and Morgan Stanley ( MS.N) adding between 2% and 3.26%.

The S&P 500 Banks Index (.SPXBK) rose 3.36% while the KBW Bank Index (.BKX) rose 4%.

After the market closed on Friday evening, the European Union said in a statement that it had adopted new sanctions that will have “massive and serious consequences” for Russia.

The EU has banned the issuance of bonds, shares or loans in the bloc to refinance Russian banks Alfa Bank and Bank Otkritie.

Three Russian banks have already been subject to asset freezes since the beginning of the week. The three main Russian banks – Sberbank (SBER.MM), VTB (VTBR.MM) and Gazprombank – were not included in the measure.

The bloc has also set a 100,000 euro cap on European bank accounts for Russian citizens, who will not be allowed to buy euro-denominated shares, while Russian President Vladimir Putin and Foreign Minister Sergei Lavrov have been listed on the EU sanctions list.

“This package includes financial sanctions, targeting 70% of the Russian banking market and major state-owned companies, including in the field of defence,” European Commission chief Ursula von der Leyen said on Twitter.

Swiss financial watchdog FINMA on Friday asked banks to freeze the assets of people and entities on the EU sanctions list. Read more

Behind the scenes, the bankers said they and their lawyers were scrambling to determine the impact of the sanctions.

Washington also imposed sanctions on Putin and Lavrov on Friday, following a series of sanctions against Russian banks and individuals on Thursday. Read more

“What the banks are focusing on right now is updating their screening mechanisms in their compliance programs to make sure they capture all of the entities that have been designated by the Treasury Department,” said Caroline Brown, partner at Crowell & Moring in Washington.

Germany’s financial regulator, BaFin, said it was in close contact with the banks it supervises regarding risks related to the crisis and expected full compliance with sanctions.

In a sign that the sanctions were starting to weigh, the London Stock Exchange suspended the membership of VTB’s subsidiary, VTB Capital. Read more

Elsewhere, insurance broker compliance officials are asking staff to stop using Russian insurers and find alternatives, said Ben Sheppard, senior research analyst at insurance investment adviser Argenta Private Capital.

DISAGREEMENT OVER SWIFT

In a report on Friday, JP Morgan analysts said the sanctions would have a limited impact on banks directly and the biggest issue was the impact on the economy.

“The main risk for European banks relates to potential GDP downgrades due to higher commodity prices and therefore potential delays in interest rate hike expectations,” the report said.

The prospect of higher interest rates had improved banks’ earnings outlook after years of ultra-low, negative rates that had eaten away at their profit margins.

On the ground in Ukraine, banks have implemented emergency measures. Germany’s Solarisbank said it had evacuated its technology center in Kyiv, which it opened last year with dozens of employees.

“It’s sad to think that just a week ago I was in Kyiv, working and developing business. Now we have to rebuild our plans and adapt,” the Ukrainian head of state said on LinkedIn. bank, Dumitru Condrea.

On Thursday, the banks most exposed to Russia fell the most.

This included Austria’s Raiffeisen Bank International (RBIV.VI), which lost 23%, regaining 4.6% on Friday. Societe Generale (SOGN.PA), which lost 12% on Thursday, was up 4.2% on Friday.

Some investors had already reduced their exposure to Russia.

“We had our own view of picking companies that would most likely be hit by strong sanctions and that was an area where we were looking to reduce our exposure,” said Andrew Formica, managing director of Jupiter Fund Management (JUP. L ).

For European banks, the biggest concern was that governments would exclude Russia from the SWIFT international payment network, but so far this has not happened.

The bankers argued that cutting Russia off from the international payments network could seriously harm its economy and ordinary citizens, and create enormous complexity and compliance risks for the global banking industry.

As Britain pushes to exclude Russia from SWIFT, French Finance Minister Bruno Le Maire said on Friday the option would only be used as a last resort, but is being assessed. for its impact. Read more

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Additional reporting by Frank Siebelt, Hakan Ersen, Huw Jones, Devik Jain, David Henry and Michelle Price; edited by Jonathan Oatis and Rosalba O’Brien

Our standards: The Thomson Reuters Trust Principles.

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