EU/Russia Banking Relations: UCG, OTP Also In Firing Line

EU and Russian financial relations worsen with Russia seizing assets (UCG, DBK and CMZB) alongside ECB pressure for banks more widely to dissociate. Unicredit and OTP have been upstreaming dividends from Russia so could see near-term spread pressure from risk of US penalties, we feel.

• The ECB continues to pressure European banks to wind down Russian operations, due to the threat of punitive US measures. Reuters first reported this on 16-May and there was more press over the weekend, specifically naming Raiffeisen (RBIAV: Baa2), Unicredit (UCGIM: Baa1/BBB/BBB) and OTP in Hungary (OTPHB: Baa3).
• FT reported at the weekend that Russia has seized over EUR700m of assets from Unicredit (EUR463m), Deutsche (EUR239m) and Commerzbank, linked to a local legal dispute with a subsidiary of Gazprom.
• The issues are already well rehearsed for Raiffeisen but both Unicredit and OTP have, in the last year, repatriated dividends from Russia back to the parents. Raiffeisen has not repatriated capital, largely as it was pursuing the much larger asset-swap deal which failed recently.
• For UCG and OTP, we would expect these dividend flows to stop and there is a tail risk that US authorities impose some form of sanction. We would expect this to stop short of ex-communication from the USD bloc but could be a financial (and reputational) negative.