Equities

Commerzbank Warns of 'Significant' Hit from Russia Cases, Holds €500M

Commerzbank faces 'significant' risks from legal challenges in Russia, with exposure reduced to €171 million from €1.9 billion.

By Barry Stearns

5/15, 09:05 EDT
JP Morgan Chase & Co.
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Key Takeaway

  • Commerzbank AG faces significant risks from legal challenges in Russia, including a court-mandated compensation ruling.
  • The bank's operations are impacted by international sanctions and asset freezes, with net exposure to Russia reduced to €171 million from €1.9 billion since the Ukraine invasion.
  • Efforts to mitigate risks include intensified screening routines in response to US and EU sanctions, holding ruble deposits worth about €500 million at the Russian central bank.

Legal Challenges in Russia

Commerzbank AG, a prominent German banking institution, has disclosed facing several legal challenges within the Russian Federation, which pose significant business risks. The bank operates in Russia through its subsidiary, Commerzbank (Eurasija) AO. A notable court decision in March mandated the bank to compensate for damages, a ruling that underscores the broader legal entanglements Commerzbank confronts in similar matters. The bank's quarterly report, released on Wednesday, candidly discusses the uncertainties surrounding these legal proceedings in Russia. These uncertainties, as highlighted by the bank, could potentially exert a considerable economic impact not only on its Russian subsidiary but also on Commerzbank itself.

Navigating Sanctions and Asset Freezes

The backdrop to Commerzbank's legal predicaments is the complex environment Western banks find themselves in Russia, especially in the aftermath of the country's invasion of Ukraine over two years ago. The international sanctions regime and the resultant operational challenges have significantly affected these banks' Russian operations. For instance, Raiffeisen Bank International, an Austrian bank, recently had to abandon a sophisticated transaction intended to repatriate profits from Russia due to regulatory hurdles. Furthermore, instances of asset freezes have become more common, with banks like JPMorgan Chase & Co. encountering legal battles, such as a lawsuit from VTB Bank PJSC. In a related development, a Moscow court seized shares of Commerzbank’s local unit and cash held in domestic bank accounts, as reported by Interfax.

Financial Exposure and Mitigation Efforts

Commerzbank's financial exposure to Russia has seen a dramatic reduction since the onset of the Ukraine conflict. The bank's net exposure to Russia decreased to €171 million ($185 million) in the first quarter, a significant drop from €1.9 billion at the time of the invasion. This reduction in exposure is part of the bank's broader strategy to mitigate risks associated with its Russian operations. Additionally, Commerzbank holds ruble deposits valued at approximately €500 million at the Russian central bank. In response to the evolving sanctions landscape, particularly those imposed by the US and the European Union, Commerzbank has intensified its screening routines, especially in the trade finance sector, to adhere to export control requirements.

Management Quotes

  • Bettina Orlopp, CFO of Commerzbank:

    "The proceedings in Russia are subject to considerable uncertainties, and these could have a significant economic impact on the subsidiary and indirectly on Commerzbank." "We are doing everything we can to protect ourselves against the legal case and similar ones if faces in the country."