Germany Seeks to Liquidate VTB Assets to Avoid Unit’s Collapse

(Bloomberg) --

German authorities are pushing the local unit of Russia’s VTB Bank PJSC to sell assets to avoid another blow to the country’s deposit insurance fund after a massive hit last year, according to people familiar with the matter.

Banking regulator BaFin and the Bundesbank are seeking to ensure VTB Bank Europe SE has the means to meet future withdrawals of deposits, said the people, who asked not to be identified as the plan is private. For now, the German unit has sufficient liquid funds to meet the current rate of withdrawals, they said.

A BaFin spokeswoman said that the regulator is monitoring VTB’s local unit closely and being given daily information on the outflows of funds. VTB’s press department didn’t respond to an e-mailed request for comment. The company had previously said that VTB Bank Europe continues to operate but is “looking at ways to simplify its activities.”

European and U.S. sanctions against Russian banks over the war in Ukraine have cut them off from most of their international businesses and have already sparked the unraveling of Sberbank PJSC’s European unit. For German lenders, a similar collapse of VTB’s local unit would result in upfront charges to compensate its depositors. Even if that would be later recouped by the sale of assets, that could take years. 

The country’s deposit insurance system is still reeling from the implosion of Greensill Bank AG last year that cost it 1.1 billion euros ($1.2 billion). The fund subsequently raised lenders’ contributions by more than 50% to shore up its reserves, a move that was one of the reasons Deutsche Bank AG Chief Executive Officer Christian Sewing had to scrap his cost target for last year. Deutsche Bank is the fund’s biggest contributor.

Avoid Payouts

BaFin, the Bundesbank and deposit insurance bodies are working to shrink VTB’s local unit to avoid triggering payouts by the fund, yet they’re still bracing for a potential collapse, said the people familiar with the matter.

VTB Bank Europe’s 7.95 billion euros of assets at the end of September make it a comparatively small lender within the region. About 1.64 billion euros of that was in cash and short-term funds, while its liabilities include 4.35 billion euros of customer deposits, company filings show.

Other assets at the unit included more than 600 million euros of financial instruments held for trading and investment, derivatives as well as securities intended to be held until maturity. Many of those would be easier to liquidate than the bank’s 5.1 billion euros of loans to customers. 

Sberbank’s European business collapsed earlier this month when the Single Resolution Board, which handles the failure of large European lenders, said that the Austrian unit of Russia’s biggest bank will be liquidated under local insolvency procedures. That’s going to put Austrian banks on the hook for compensation to depositors of near to $1 billion. 

Sberbank Europe AG had 13.6 billion euros of assets, which is more than at VTB. That normally would not be enough to qualify as a “significant” bank, but Sberbank Europe was given that status because of the cross-border nature of its business.

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