Raiffeisen proposed a scheme for exchanging assets with Sberbank in Russia and Europe

The Austrian RBI group proposed a mechanism for exchanging business in Russia for Sberbank assets in Europe. "Hidden barter" may include assets in Belarus. The deal is beneficial to the parties, but the sanctionswill hinder herexperts say

The Austrian group Raiffeisen Bank International (RBI) is working on an asset swap scheme with the Russian Sberbank, Der Standard wrote, citing Falter weekly. According to the paper, the potential deal was internally named "Project Red Bird" by the RBI. It is being developed by Raiffeisen managers led by group CEO Johann Strobl. The document was considered at the RBI board meeting on March 7.

According to the weekly, "hidden barter" provides that Sberbank will receive Raiffeisen's assets in Russia, and the Austrian group in return - the assets of a Russian bank in Austria.

An RBI representative, in response to a request from RBC, confirmed the existence of the scheme, although he called the likelihood of such a transaction a "theoretical consideration." “There is no agreement or other specific steps for such an asset swap,” the bank said.

“A prerequisite for such an exchange could be the possibility of reducing the position of RBI on Russia, RBI is considering several options. It goes without saying that the RBI complies with all sanctions. Any transactions will be agreed in advance with the authorities and carried out only after obtaining all the relevant permits, ”the Austrian group noted. RBC sent a request to Sberbank.

According to Der Standard, Sberbank and RBI may conclude an agreement under which the former will receive not only control over the Russian Raiffeisenbank, but also a certain dividend payment either from the Austrian group or from its Belarusian structure. Dividends mean the net profit of Raiffeisenbank for 2022 in the amount of €2 billion. However, the publication does not specify how exactly the calculations will be made.

Another exchange option is the transfer to Sberbank, including the Belarusian subsidiary of Raiffeisen Bank International, whose assets are also estimated at about €2 billion. This is the price RBI is ready to pay for the remaining assets of Sberbank in Europe.

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What can the parties offer to each other?

After the start of the Russian military operation in Ukraine, the RBI group, like many foreign banks, announced that it was considering exiting the capital of its subsidiary bank in Russia. Russian Raiffeisenbank is one of the systemically important credit institutions; as of February 1, 2022, it ranked 10th in terms of assets in the system and 13th in terms of capital. During the year, RBI management repeated the thesis that the group was studying all options for the future of the "daughter" in Russia, including the sale of the asset. At the same time, the Russian structure turned out to be the most profitable territorial bank for RBI in 2022: Raiffeisenbank's net profit exceeded €2 billion, having increased 4.3 times over the year, and amounted to 54% of the group's total profit.

At the end of the year, the assets of the Russian "daughter" were estimated at €26.9 billion, and the capital - at €4.1 billion, follows from the RBI presentation to the annual report under IFRS (.pdf).

However, RBI cannot receive dividends from Russian business: since the spring of last year, the Central Bank has been restricting the movement of capital to the so-called unfriendly countries. They affect, among other things, the payment of remuneration to non-resident shareholders.

Since February last year, Sberbank has come under sanctions from the United States , the European Union, Great Britain and Switzerland. Against this background, the bank announced its withdrawal from the European market, where it worked through Sberbank Europe AG (“Sberbank Europe”). Sberbank has effectively lost European business due to sanctions: in March, the European Central Bank warned that Sberbank Europe AG was “going bankrupt or has such a prospect”, and the Austrian Financial Markets Authority banned the credit institution from continuing to operate. Now the "daughter" of "Sberbank" is undergoing a liquidation procedure. Sberbank appealed to the Court of the European Union to challenge this decision.

Sberbank Europe AG worked in eight countries - Austria, Germany, the Czech Republic, Bosnia and Herzegovina, Croatia, Hungary, Serbia (in this country Sber managed to sell its subsidiary) and Slovenia. The group served 715 thousand customers in Europe, its total assets were €12.94 billion at the end of 2020, and the capital was €1.4 billion (no reports for subsequent years).

But the deal carries sanctions risk. Russian Raiffeisenbank remains one of the three systemically important banks that have not fallen under blocking sanctions - transfers abroad are still available in it, and the bank's foreign assets have not been frozen. Since last year, Sberbank has been under both European and British sanctions, as well as American ones (SDN list). Blocking restrictions automatically apply to the "daughters" of the SDN list.

Is it possible to exchange assets between Raiffeisen and Sberbank

From the spring of 2022, all transactions by non-residents for the sale of shares or stakes in Russian assets can be carried out with the permission of a special subcommittee of the government commission for foreign investment control. Last summer, Deputy Finance Minister Alexei Moiseev said that the authorities would no longer approve such transactions in the banking market. This decision was later confirmed by a presidential decree, and in October, President Vladimir Putin approved another list of 45 banks, which were banned from transactions with their shares and shares in the authorized capital. The list also includes the Russian subsidiary of the Austrian Raiffeisen Bank International.

An asset swap deal would also require the consent of a Russian government commission, says Stanislav Danilov, partner at Pen & Paper. “Judging by the description of this structure of the transaction, the barter asset in Russia will be acquired by Sberbank conditionally for 1 ruble, while, apparently, the assets of Sberbank will be acquired by Raiffeisen for €1”, that is, Sberbank, in fact, receives assets for free , says the lawyer, emphasizing that from the point of view of the profitability of the deal for the Russian side, "there can be no real grounds for refusing to allow such a deal." But the issue of compliance with sanctions and the requirements of foreign regulators for RBI is “a completely different story.”

“Probably, RBI will need to negotiate with its regulators and convince them that this deal does not violate anything and is in the national or European interests,” concludes Danilov.

Such large transactions for the exchange of assets between banks are not common, notes Lyudmila Kozhekina, director of banking ratings at Expert RA: “In addition to the agreement between the participants in the transaction, it is necessary to obtain approval from the regulatory authorities, which supervise both parties to the transaction. Thus, the process is likely to be long and laborious, with a high probability that the European authorities will block the exchange.” In general, the deal "is mutually beneficial for both parties, since it at least partially compensates for losses from the loss of foreign assets," Kozhekina believes.

Who else tried to swap assets with RBI

Last year, VTB offered large European banks to exchange assets - to transfer to them their "daughters" in Europe, whose business was actually frozen due to sanctions, in exchange for gaining control in Russian structures of foreign players. The head of the state bank, Andrey Kostin, said that such transactions could be made with the UniCredit and Raiffeisen Bank International groups, since their subsidiaries are the largest banks with foreign participation in Russia. According to Kostin, Western players have an interest in such exchange deals, but they cannot get permission from regulators in Europe.

Independent financial analyst Andrei Barkhota calls the asset swap option "one of the most viable" for RBI. He recalls that other major European banks were forced to either sell their subsidiaries in Russia at a significant discount (like Societe Generale sold Rosbank) or “dry up their balance sheets” by reducing lending and operations (like UniCredit).

According to Barhota, neither option suits Raiffeisen: “Firstly, the subsidiary bank RBI has a high level of operational and financial efficiency. The average normalized return on equity was about 25%, while the Cost to Income ratio (the ratio of operating expenses to income) did not exceed 42%. The second reason is that the share of RBI's Russian business was significant in the share of the group's profits, which means that the bank could not be sold at a big discount.

In addition to possible regulatory obstacles to such a transaction, the analyst highlights the difficulty in determining the value of assets for exchange. “An independent appraiser can take into account the presence of Sberbank on the sanctions list, which means applying a large discount to its European assets, while Raiffeisenbank, if not on the sanctions lists, can be valued at the upper limit,” Andrey Barkhota notes.