Exclusive clients appeal to major custody banks to stay in Russia

  • Banks are facing increasing pressure to commit to custodian roles
  • Banks say they will fulfill existing customer obligations
  • Some customers fear that checkout will follow with higher costs

LONDON/NEW YORK (Reuters) – Global banks including Citigroup (CN)JPMorgan Chase & Co., (JPM.N) and Societe Generale (SOGN.PA) It is under pressure to commit to remaining as a trustworthy bank in Russia, as competitors and funds fear they may lose important services for future investment in the country.

Dealers, bankers and executives from three other financial institutions told Reuters that they are seeking or have sought reassurance on behalf of clients about each bank’s long-term plans for these firms, which clear, settle and protect billions of dollars in Russian holdings.

Portfolio banks have departments that take care of assets for clients for a fee.

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A London-based banking source, who spoke anonymously to respect the confidentiality of a major global fund client, said they are in weekly contact with senior Citibank Moscow executives about the status of the custodian business.

The source said their client was waiting to trade Russian stocks when the Moscow Stock Exchange (MOEX) reopened, but they needed to be reassured that a Western trustee was in place.

According to the source, Citigroup executives said they will serve customers as long as sanctions allow.

A source familiar with Citi said that this bank is used by major US and international companies in Moscow and that cutting off these clients would harm relations with clients. Other bankers said it was critical for the industry that Citi, the major player, continued to operate in Moscow.

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Citigroup declined to comment.

Another banker, based in New York, said he sought assurances from Societe General Motors that they would “stay grounded” until his bank could meet its custodian obligations to customers. The source said SocGen executives had given assurances that they would, at least in the near term.

Citigroup and SocGen, the French parent company of Rosbank (ROSB.MM), has already announced plans to significantly reduce operations in Moscow as part of a comprehensive program of Western sanctions aimed at isolating Russia economically after its invasion of Ukraine. Read more

Both banks said they would help their clients with the complex tasks of unlocking or reducing exposure to Russia, and said the withdrawals would take time to implement.

But neither has made a public statement about the long-term status of Custodian Services, leaving some clients worried about the future.

A SocGen spokeswoman said in an emailed statement that the group “runs its business in Russia with the utmost caution and selectivity, while supporting its historical clients.”

Societe Generale “strictly complies with all applicable laws and regulations and diligently implements the necessary measures to strictly enforce international sanctions as soon as they are promulgated.”

The bank declined to comment specifically on custody work in Russia.

JPMorgan Chase & Co (JPM.N) It also offers similar foster care services from its Moscow location. The bank has received inquiries from customers seeking assurances that custody services will continue to be provided, according to a source familiar with the matter. It said earlier that it will continue to act as a custodian for its clients.

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Bank of New York Mellon Corp (BK.N) It also said it would continue to provide escort services in Russia.

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If the banks decide to stop custody services in Moscow, many Western investors who already own Russian stocks or bonds will have to look elsewhere for a bank to hold these assets, while others keen to exploit the financial market or economic recovery may find that sanctions are lifted. It’s hard to follow through on those plans.

Société Générale, France’s third largest bank, warned stakeholders on March 3 that it could be stripped of equity to its Russia business in a “potentially extreme scenario”. Read more

Meanwhile, Citi initially said it would operate its Russian business on a more “limited basis” in the wake of the war, which President Vladimir Putin has described as a “special military operation”.

But by March 14, it said it would accelerate and extend that decline by ditching its institutional and wealth management clients in Russia. Read more

Besides transaction services, several Moscow-based custodians offer extras such as language translation of central bank documents which are also highly regarded by Western clients.

The Russian Central Bank said separately on Wednesday that some trading in the stock market will resume on Thursday, as 33 securities are scheduled to trade on the Moscow Stock Exchange for a limited time with a ban on short selling. Read more

The challenge facing banks in meeting their obligations to customers in Russia is getting tougher, and could become even more difficult if sanctions are tightened, as the first anniversary of the invasion falls this week.

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Russia has set strict new rules for foreigners seeking permits to buy and sell Russian assets ranging from securities to real estate. Read more

Another New York banker described the work of ensuring that customers comply with penalties related to securities holdings a “logistical nightmare” and said his company has hired 20 new compliance staff in recent weeks.

Data from global companies, banks and investors showed that nearly $135 billion of exposure to Russia has so far been disclosed. Read more

US asset managers including Vanguard and Capital Group Companies Inc, which operates the American Funds franchise popular with millions of moms and retired savers, have revealed significant exposures that exceed billions of dollars, according to the latest available portfolio information. Read more

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Additional reporting by Sinead Cruz in London, Matt Skovham and Megan Davis in New York.

Our criteria: Thomson Reuters Trust Principles.

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