Hundreds of bankers who work for Russian banks in London and other cities in the West face uncertainty over whether their institutions can stay in business – and even whether they can receive salaries following the raft of sanctions imposed after Russia’s invasion of Ukraine.
VTB Capital, Russia’s main investment bank and second-biggest bank by assets, employs about 150 staff in London in equity and debt capital markets, advisory and trading – including many non-Russians. But its future is unclear after the UK, US, European Union and other authorities imposed sanctions on its parent, VTB Group.
Sanctions have also been placed on other Russian banks, and bankers said they expected significant layoffs in the coming weeks. A US banker who works for one is in a particularly tricky position. "For now I'm an employee of the bank, but I don't know if they can even pay us or for how long," he said. "As a US citizen it makes life more complicated, and I doubt I will be an employee from late March because of the US sanctions prohibiting US persons working with sanctioned entities. And they probably can't pay me anyway."
In the short term at least, VTB Capital bankers should be able to be paid. The UK Treasury on Tuesday issued a licence for VTB Capital that allows it to make payments for basic needs, including remuneration and related payments such as pensions, for one year.
One London-based lawyer said other Russian banks subject to sanctions now needed to get a licence to allow pay, as VTB Capital has done. If they don't “their accounts will be frozen and therefore employees cannot be paid as they would be receiving funds from a designated person", the lawyer said.
The licences, issued via the Office of Financial Sanctions Implementation, are temporary and can be revoked. The licence applicable to VTB Capital allows it to pay fees to legal advisers and other service providers, such as property managers and utilities. That is critical for the London office, as it is involved in high profile litigation seeking to recover a US$535m loan it made to a Mozambique state-owned company.
Another hurdle may come from Western moves to block payments facilitated by the Swift messaging system which could complicate moving money from Russian parent entities to meet salary obligations at subsidiaries.
“The payment of employees is likely to be problematic ... if the payment of salary is not made by a European unit but by the Russian parent company itself,” said Renate Prinz, a Germany-based corporate and banking regulatory partner at law firm McDermott Will & Emery.
“Thus, if a cross-border payment is required for salary payments, this cannot be carried out by an institution affected directly by the Swift exclusion.” If a European subsidiary of a Russian bank became insolvent that would mean “a complete stop of payments, including salaries of employees”, she said.
Under the shadow
VTB Capital has lived under the shadow of sanctions since 2014 when Russia seized Crimea from Ukraine, although its UK arm still had net assets of US$1.7bn at the end of 2020 and made US$136m in revenues that year. It has gradually wound down its international operations since then, but was still hiring people in London to beef up its investment bank capabilities as late as December.
“Ordinarily we would seek advice from outside counsel, but the sanctions put that in doubt as lawyers are demanding upfront payment,” said one VTB banker. He said he expected more staff to leave in coming weeks with a rump remaining to manage outstanding positions. A separate licence from the Treasury allows it to unwind positions.
That could take some time, particularly considering the Mozambique litigation. “I’ve no idea how that will work and whether some people will still be able to be paid to do this,” said the banker.
“This is going to be an orderly wind-down,” he said. “But it’s hard to know how to do it. You need to get a licence for everything from the electricity bill to March’s payroll to regulatory fees. There is little guidance.”
Regulators in Germany, meanwhile, are preparing for a possible closure of VTB Bank's European arm, Reuters reported on Thursday. VTB Group did not comment.
Bankers at other Russian-linked entities, such as Renaissance Capital and BCS Global Markets, are also worried about their prospects, even though those institutions are not placed under sanctions. "I have literally no idea what will happen [with our jobs]," said one, who said there was little work to do.
Another said: “Everything has changed for us in the past week, maybe terminally.” He said his bank was EU-regulated and open for business but there was not much to do as most normal work was Russia-related and therefore largely prohibited.
“This isn’t like Covid where we could hunker down for one or two years and things would come back. This is terminal. Sanctions could last decades. Everything Russian is toxic. Even if there is regime change then it would take years to build trust and remove sanctions,” he said.
Russia’s largest lender Sberbank, whose majority shareholder is Russia's finance ministry, also has a corporate and investment banking subsidiary in London. The group is subject to sanctions although not to the same extent as VTB. Its global depository receipts in London fell over 90% during the week and it has already closed some European businesses.
“In light of the current situation, Sberbank has taken the decision to withdraw from the European market,” it said in a statement. “Due to a directive from the Central Bank of Russia, Sberbank of Russia cannot provide liquidity to its European subsidiary banks.”
It said its Swiss business was unaffected but did not mention its London investment bank. It has around 50 staff in that division, which made £41.5m revenues in 2020.
Significant numbers of London staff at VTB and Sberbank are not Russian nationals. VTB Capital has offices in Moscow, London, Hong Kong, Singapore and Sofia, and has said it also used VTB Group's offices in Shanghai, Frankfurt, Vienna and Zug.
Additional reporting by Steve Slater and Robert Hogg