The European Union added Russia’s three largest lenders, OAO Sberbank, VTB Group and OAO Gazprombank, to its list of institutions sanctioned over President Vladimir Putin’s stance on Ukraine.
Vnesheconombank, the state development bank, and the state-controlled Russian Agricultural Bank were also targeted in the latest punitive trade measures, published in the EU’s Official Journal today. They take affect tomorrow.
The financial sanctions, which follow similar U.S. measures on July 16, restrict the lenders from selling bonds or shares within the EU. The five banks will still be permitted to carry out other operations in the 28-nation bloc, the journal said.
“These are state-owned agents of state power, which are not related to the energy sector,” Tim Ash, London-based economist for emerging markets at Standard Bank Group Ltd., said by phone. “They are easy targets and Europe wants to send a strong signal without jeopardizing their ties to the energy supply from Russia.”
EU representatives met this week to step up sanctions after the crash of a Malaysian passenger plane in rebel-held eastern Ukraine. U.S. intelligence and military officials have said evidence indicates a missile brought down the jet. The Ukrainian government and pro-Russia separatists fighting in the region have denied any responsibility.
Lending to Russian companies has fallen since the crisis began as international banks weigh the political and financial risks of maintaining relationships with clients in the country.
Valery Lee, a Gazprombank spokesman, said in an e-mail that the sanctions won’t hurt the company’s operations. VTB’s press office said in an e-mail that its future market deals will depend on market conditions. Alexander Baziyan, a Sberbank spokesman, and Ekaterina Grishkovets, a VEB spokeswoman, didn’t respond to e-mails seeking comment.
Sberbank, the 173-year-old former Soviet savings bank, holds about 46 percent of the nation’s deposits and has been run by former Putin Economy Minister Herman Gref since 2007. VTB, which is 61 percent owned by the state, is run by former Soviet diplomat Andrey Kostin and has expanded into investment banking in Moscow and London since luring more than 100 bankers from Deutsche Bank AG in 2008.
Gazprombank, started in 1990 as an institution focused on OAO Gazprom, the Russian natural-gas export monopoly, has grown to serving more than 45,000 companies. Gazprom retains a 36 percent stake in the lender.
Vnesheconombank, or VEB as its known, has assets valued at $83 billion, or about 4 percent of Russia’s economic output. The bank was the government’s bailout manager in 2008-2009 when it rescued troubled companies and bought domestic securities to support financial markets.
Russian Agricultural Bank, which is 100 percent owned by the state, provides financial services to agribusiness and the country’s rural population. It has 78 regional branches and about 1,500 additional offices serving more than four million clients, according to its website.
Sanctions already announced have intensified a sell-off in the ruble and capital flight from Russia amid the worst standoff with the U.S. and its allies since the Cold War, pushing the economy to the brink of recession. Sberbank and VTB lost 1.5 percent and 0.7 percent, respectively, in New York trading today after the sanctions were published.
Russian state-owned lenders, including VTB, Sberbank, Gazprombank and Vnesheconombank, have more debt to repay in euros, dollars and Swiss francs than they do in rubles over the next three years, according to data compiled by Bloomberg. They have about $15 billion in dollar, euro and franc-denominated bonds maturing 2015 through 2017, compared with about $9.7 billion in ruble debt.
The U.S. sanctions prevent Gazprombank, VTB and VEB from accessing U.S. equity or debt markets for new financing with a maturity beyond 90 days. That will raise borrowing costs and effectively cut off medium- and long-term financing.
“Sberbank’s and VTB’s inclusion in the sanctions list sends a clear signal that the western block is firm in its position and should not be ignored,” Renata Klita, an analyst at Blackfriars Asset Management Ltd. in London, said by e-mail.