What would Raiffeisenbank's withdrawal from Russia look like?

Raiffeisenbank can be not only sold, but also excluded from the business of its Austrian owner. RBC understood the nuances of any transaction with a bank,

The Austrian Raiffeisen Bank International (RBI) outlined two scenarios for curtailing its business in RUSSIA - either the sale of a subsidiary of Raiffeisenbank, or the withdrawal of an asset from the group. The bank, which has been trying for many months to find different options for leaving the country, for the first time spoke about the discussion of this scheme.

The disclosure came amid intense pressure from regulators and its own shareholders. As REUTERS wrote, at the end of March, the European Central Bank (ECB) demanded that Raiffeisen leave the Russian market - at least provide an action plan in this direction. On March 28, the Austrian Investor Association (IVA), which protects the interests of minority shareholders of local companies, announced its intention to raise the issue of the group's future strategy in Russia at the annual meeting of RBI. The association emphasized that the silence of the Raiffeisen management "increasingly affects the bank's reputation."

Minority shareholders now control 41.2% of the group's shares, the rest is held by a syndicate of eight regional banks Raiffeisen in Austria.

What's going on with Raiffeisenbank

After the start of a special military operation in Ukraine, Raiffeisen Bank International, like many foreign banks, announced that it was considering an exit from the capital of its subsidiary bank in Russia. Raiffeisenbank at that time ranked 10th in terms of assets in the country (1.63 trillion rubles) and 13th in terms of capital (186.6 billion rubles). It is included in the list of systemically important credit institutions, and in 2022 it turned out to be the only large bank that was able to significantly increase profits during the crisis. According to RAS financial results, Raiffeisenbank's financial result increased 3.6 times in 2022, to RUB 141 billion. (.pdf). For RBI, the Russian structure turned out to be the most profitable territorial bank - the "daughter" generated 54% of the group's total profit (amounted to € 3.8 billion). At the same time, RBI cannot receive dividends,

Is it possible to sell Raiffeisenbank

“The more time passes, the more difficult it is to sit on two chairs, so the probability of selling the bank this year seems to be higher than the probability of further uncertainty,” says Yury Belikov, managing DIRECTOR of Expert RA. At the same time, he, like other experts interviewed by RBC, points to a number of obstacles to such a deal.

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The scenario of selling Raiffeisenbank to a strategic investor is complicated by the high price, says Andrey Barkhota, an independent financial analyst. According to his estimates, such an asset should be sold with a multiplier of 0.7 of capital. “This is due to the fact that the recent transaction for the alienation of Otkritie Bank shares was carried out at a price of 0.65 of capital, while Raiffeisenbank's financial and operating efficiency indicators are higher,” the expert explains.

According to RAS, at the end of last year, the total capital of Raiffeisenbank amounted to 305.5 billion rubles. (.pdf). Thus, with this assessment, only the bank, excluding additional business in Russia, can be valued at 213.9 billion rubles.

Raiffeisenbank's record dividend, which "settled" in retained earnings, should probably be factored into the deal price, Belikov said. But "a sale without a discount is unlikely, and this has nothing to do with the bank's standalone performance, but simply follows from the prevailing realities and corresponds to similar transactions already made," the analyst explains.

Another obstacle to a possible sale is the narrowness of the circle of potential buyers, says Barkhota: “We can assume that we are talking about several largest Russian corporations. But in this case, difficulties arise related to the coordination of this transaction with European regulators and the passage of all procedures in Russia.”

From March 2022, any transactions by non-residents with Russian assets require the permission of a special commission under the government. In August last year, Vladimir Putin signed a decree seriously restricting sales in the banking market - transactions with shares and shares of 45 credit institutions with foreign participation are possible only with the permission of the president. Raiffeisenbank is included in this list.

Raiffeisenbank has been working on the option of leaving Russia for three to four months, Mikhail Zadornov, an economist and ex-head of Otkritie Bank, told RBC. He points to another fundamental difficulty in the implementation of such a transaction for the Russian authorities and the buyer - the preservation of the transaction business of Raiffeisenbank: “Approximately 40% of all settlements in dollars and euros from Russia go through the bank. Even for other small banks that are not yet under sanctions, the real correspondent bank for settlements in euros and very often in dollars is RBI. For Russia, the closure of Raiffeisenbank and the absence of such a channel means that we will cut the conducting capacity for settlements in hard currencies by about half. There should be a purchase within the country by an organization that itself will not immediately fall under the sanctions and Raiffeisenbank too.” According to him,

The role of Raiffeisenbank in the market of cross-border transfers

The fact that the Russian Raiffeisenbank now accounts for 40-50% of all payments between Russia and the rest of the world was reported in February by the Financial Times (FT) with reference to a top manager of a credit institution. Of the systemically important banks, only he and UniCredit are not currently under sanctions. Until recently, the restrictions did not apply to Tinkoff Bank either, but in February 2023 it came under blocking EU sanctions. Immediately after that, Raiffeisenbank twice raised the minimum amount of transfers in foreign currency - in March it quadrupled. From April 3, the threshold will be $20,000, and transactions are available only to those customers who have activated premium service packages by the end of February.

“We are forced to introduce these restrictions, since we must not exceed the limits set by correspondent banks on the number of payments in foreign currencies,” explained a representative of Raiffeisenbank.

How the withdrawal of an asset from a group might look like

According to the Financial Times, "Plan B", which implies the removal of the asset from the group, includes the spin-off of the Russian business into a separate company with a listing in Europe. Such a measure is considered more expensive, but "more viable from a political point of view," the publication notes, citing a top RBI manager.

As ACRA CEO Mikhail Sukhov notes, the deconsolidation process can also take place “through the separation of assets and liabilities from the balance sheet and their transfer.” This, according to him, may be a simpler way out of Russia, since purely technically it will not be a deal with shares and shares of a credit institution.

According to RAS reporting, at the end of last year, Raiffeisenbank's total assets amounted to 2.09 trillion rubles, of which 1.23 trillion rubles. accounts for loans. The total liabilities were estimated at 1.79 trillion rubles, 1.13 trillion are customer funds. (.pdf)

“Another question is how comfortable RBI will make a deal with one or another applicant - they are unlikely to do this with sanctioned persons. For other banks, the price may be unaffordable due to the large size of Raiffeisenbank, ”says Sukhov. However, he admits that the buyer may not necessarily be a bank. “Theoretically, any structure can first buy a small bank for the sake of a license, let's say a “skin”, capitalize it, and then accept assets and liabilities on the balance sheet. The interest of non-residents of friendly countries cannot be ruled out,” the expert concludes. According to him, in such a scenario, the capital of Raiffeisenbank, along with record dividends, is unlikely to be transferred, but the issue of repatriation of these funds can be decided by RBI in the relevant government commission.

One way could be to exchange Russian assets for assets in Europe, Anton Imennov, senior partner at Pen & Paper, believes. He recalls RBI's plan to implement "hidden barter" with Sberbank, which had previously lost control of its subsidiaries in Europe. RBI called this plan theoretical, but Sberbank did not comment on it.

According to Imennov, the exchange of assets, as well as the sale of a business, will require compliance with sanctions restrictions and long-term coordination with regulators in different countries. “The deadlines for issuing permits by the Russian regulator are not regulated by law. According to some reports, more than 2 thousand companies are currently waiting for permission, and the review speed does not exceed 21 per month. The terms for granting a license by Western regulators can also reach several years, ”the lawyer notes.

The most realistic scenario, according to Yury Fedyukin, managing partner at Enterprise Legal Solutions, is the spin-off of a Russian bank from RBI and the sale of the business to management.

Usually, the share of the founder is either divided into several parts, or transferred to a specially established organization. Transactions can be concluded at a market price, but contain specific conditions, such as deferred payment, Fedyukin describes: when restrictions can already be lifted, and in order to preserve the possibility of returning Russian business to the RBI structure. Finally, the transfer of business to loyal management allows you to maintain certain levers of its management.”

How Raiffeisen's plans will affect the bank's customers

After the change of ownership, it is quite possible to impose sanctions against Raiffeisenbank, Belikov admits: “There are well-known examples of such a development of events. But, of course, it also depends on the answer to the question of who can become a buyer.

In the spring of 2022, the French Societe Generale sold its subsidiary Rosbank to Vladimir Potanin's Interros. In June, the UK authorities imposed sanctions against a businessman, including for the purchase of an asset from foreigners. In December, Rosbank was already under blocking US sanctions, and in February 2023, the European Union introduced similar restrictions.

Sanctions after the sale will hurt Raiffeisenbank's money transfer business, Belikov said. But this will not lead to losses or a critical drop in profits, since the bank has predominantly local sources of interest income and a significant business in internal settlement and cash services.

According to Barhota, all scenarios for Raiffeisenbank's exit will one way or another lead to a contraction of the active client base. “The biggest loss is expected in the segment of cross-border and foreign exchange transfers, which will not be easy to make up,” the expert concludes.