European Bank Stocks: Which Against All Odds Are Worth a Look

by Wolfgang Ehrensberger, Euro on Sunday

The western sanctions against the Russian financial sector are also feeling the effects of the other European banks – and thus an industry that had particularly benefited from the central banks’ hopes of a turnaround in interest rates in recent months. Above all, institutes with comparatively large credit commitments in Russia, such as the Austrian Raiffeisen Bank International, but also French and Italian institutes have suffered price collapses since the outbreak of the war.

After the attack on Ukraine, the western community of states decided, among other things, to exclude Russian banks from the international financial communication system Swift. This hit the Russian financial sector, but also caused uncertainty in the entire European banking sector. Because this threatens payment defaults by Russian credit customers. The financial supervisory authority has meanwhile banned the Vienna-based EU subsidiary of the Russian Sberbank from business operations, which triggers the so-called deposit insurance case. Sberbank itself announced its withdrawal from the European market – due to large cash outflows and allegedly also because of threats against employees.

Socit and Unicredit collapse

The share prices of banks with business in Russia have slumped in double digits since the beginning of the week, and the Eurostoxx Banks index fell by five percent on Monday alone. The big French bank Socit Generale (minus 20 percent since the beginning of the war) and the Italian HVB parent UniCredit (minus 23 percent) belong to the European money houses with large business in Russia.

The Austrian banking sector in particular is relatively extensively involved in Russia. Raiffeisen Bank International (RBI) has been hit the hardest, and its shares have lost more than 40 percent in the past few days. The bank does most of its business in Russia, Ukraine and Belarus. The economist and former head of the IFW, Gabriel Felbermayr, has already called for state support for the institute in Vienna.

According to the Bank for International Settlements, the outstanding claims of Austrian institutions against Russian debtors at the end of 2021 were eleven billion euros. Only Italy and France had higher credit claims, each with EUR 23 billion. In contrast, the risks of German banks are comparatively manageable at five billion.

Nevertheless, the share prices of Deutsche Bank and Commerzbank came under pressure. Both institutes have already significantly reduced their commitments in Russia.

Commerzbank said on Tuesday that its exposure to Russia was 1.3 billion euros, or 0.4 percent of total credit claims. Meanwhile, Deutsche Bank boss Christian Sewing commented on the situation of the banks in Germany in his capacity as president of the private banking association BdB. Accordingly, the risks of the German money houses are manageable, the safety buffer of European banks is greater than ever.

The chief economist of the VP Bank Group, Thomas Gitzel, put the total Russian liabilities to EU institutions at 75 billion euros or 0.7 percent of all bank claims. This is a “manageable” dimension. The Swift exclusion of Russian banks could result in debtors no longer being able to pay their debts to European creditors. In the Austrian banking sector, four percent of the outstanding claims were due to a Russian address.

What savers need to know now

Banks and institutes from the Russian sphere of influence repeatedly appeared high up in the lists of banks with the highest overnight and fixed-term interest rates, including uro am Sonntag. In view of the Ukraine war and the sanctions against Russia, we have removed them from our interest rate comparisons.

But what are the effects of the crisis on current customers? After all, the European subsidiary of the Russian Sberbank based in Vienna was banned from doing business this week and the compensation case was declared.

The general rule: If European subsidiaries of Russian banks become insolvent, this is a deposit insurance case. This means that savers get at least part of their money back. In the EU, the statutory deposit guarantee is EUR 100,000 per investor and bank. Credit balances in excess of this amount are only secured if the banks have voluntarily set their own rules. An overview:

Sberbank: Around 35,000 customers will be compensated here in the coming weeks. The Association of German Banks announced that EUR 913 million of their deposits of EUR 1 billion were secured. The Austrian deposit insurance is actually responsible. Since the customers come almost exclusively from Germany (here the institute was active under Sberbank Direct), the compensation scheme of German banks takes over the procedure.

The savers do not have to register themselves, but are written to. In the case of statutory deposit insurance, according to the law, compensation (including interest promised by Sberbank) must be paid within seven working days.

VTB: VTB Bank Europe is majority-owned by the Russian state and, like its German branch, VTB Direktbank, is based in Frankfurt am Main. It belongs to the statutory deposit insurance and is also a member of the deposit insurance fund of the Association of German Banks. The protection of private investors thus goes beyond the EU deposit insurance: With a liable equity capital of VTB Bank Europe of recently 1.1 billion euros, the protection limit is currently given by the deposit protection fund at 167 million euros per customer.

FIBR and East West Direct: The owner of FIBR (formerly Amsterdam Trade Bank) is the Russian Alfa Bank, East West Direkt belongs to Sistema JSFC, one of the largest investment companies in Russia. In the event of insolvency, the Dutch deposit guarantee system would step in for FIBR customers, and Luxembourg’s deposit guarantee for East West Direkt – both with EUR 100,000.

VTB Invest: A special case is VTB Invest, the robo-advisor of VTB direct bank. “Existing customers can currently dispose of their credit within the framework of the contractual agreements,” said a spokeswoman for the financial regulator Bafin to the financial portal biallo.de. This means: If you want to terminate your deposit with VTB Invest or make partial payments, everything should work smoothly as things stand at the moment.

Anyone who still wants to liquidate the entire VTB-Invest depot should be aware that the depot and clearing accounts are kept separately by VTB Invest at the partner institute, Baader Bank in Munich. The funds included (exclusively ETFs) are part of the special fund and remain in your possession in the event of compensation. You have the right to surrender or transfer the deposited securities.