Sberbank’s U.K. Unit Faces Collapse Amid Russia Sanctions

(Bloomberg) -- The U.K. arm of Russia's biggest lender Sberbank of Russia PJSC is being wound down, becoming London's highest-profile financial casualty in the aftermath of the invasion of Ukraine.

Sberbank CIB U.K. Ltd. will enter so-called special administration, a form of insolvency that ensures there's minimal disruption to financial markets, a London judge ordered on Friday.

“The company has encountered severe financial and operational difficulties due to the Ukraine crisis and the corresponding sanctions, as a result of which it is cash-flow insolvent and is unable to continue to operate effectively,” its lawyer Mark Phillips said in a court filing.

The administrators have been in talks to try to secure a special license to allow the unit to carry on with some financial services, he said. A license granted to Sberbank to continue certain activities and help wind down its activity runs out on Sunday.

As with many Russian financial subsidiaries in countries that have imposed sanctions, Sberbank CIB has struggled to carry on as key staff leave and counterparties walk away. Banks including JPMorgan Chase & Co., Societe Generale SA and Citigroup Inc. have cut off relationships in recent weeks and the U.K. unit's chief executive officer resigned on Thursday, Phillips said.

Rekha Jogia-Soni, a spokeswoman for Citigroup in London, declined to comment. Spokespeople for JPMorgan and Societe Generale didn't immediately respond to requests for comment.

The Russian government holds a controlling stake in the bank. While Sberbank's U.K. unit hasn't been specifically sanctioned, its parent company has been banned from clearing sterling payments through the U.K. and has been cut off from the U.S. financial system.

Partners from Teneo Inc. have been appointed as the special administrators to help wind-up the firm, which has a net asset position of $169.5 million.

Sberbank said in an emailed statement that it “will wind up operations” of the U.K. unit “in accordance with the legislation after fulfilling all customer liabilities.”

It said the decision was taken “as a result of reevaluating the economic potential of the Global Markets business unit's presence in the U.K.” The company's key employees “will continue to perform their duties.”

The most pressing concern for the U.K. subsidiary is the license that's set to expire on Sunday. The company and administrators have already been in discussions with the Office of Financial Sanctions Implementation, seeking another license to help wind down the firms business.

The company's only source of cash was held with Euroclear, court documents say. That money is being used to settle trades, but the expiry of the license may complicate that.

“There is a real risk” that by market opening on April 4, “the company will be in a position where it is unable to settle any of its trade liabilities as Euroclear refuses to settle transactions on behalf of the company,” lawyers acting for Sberbank CIB said in court documents.

Sberbank had already decided to withdraw from the European market after facing a run on deposits. The bank's chief executive officer, Herman Gref, was personally added to U.S. and U.K. sanction lists last week.

Friday's developments come just weeks after a judge ruled Sova Capital Ltd., a London-based broker owned by Russian banker Roman Avdeev, should enter special administration. Lawyers for Sova told a London court last month that it had “severe liquidity problems” and “significant exposure to Russian interests.”