A number of recent events have contributed to the Russian bank’s UK arm being on the brink of administration. Most notably, VTB has shut down its fixed income cash bonds business in Hong Kong and sold off its losses-generating Wall Street operation in a management buyout. The bank also lost $1mn from early eviction of its lease. Earlier this month, VTB’s CEO threatened to remove its listing on the LSE because UK regulators were making excessive demands over its conflict with Ukraine. In addition, he called current British Prime Minister Boris Johnson a “jerse” in a press conference in Moscow.
The decision is a result of sanctions against VTB that have prevented it from operating or paying its debts. The bank is now preparing to apply for a special administration license from the U.S. Office of Foreign Assets Control. The order will not be sealed until the Russian bank is given the license to operate in the U.S., but this does not mean that the bank is officially shut down.
The British regulator is currently investigating whether the Russian bank VTB is engaging in criminal activity against unnamed individuals. The Russian authorities have also launched a criminal investigation against unnamed individuals. VTB Capital plc is the UK arm of the state-owned Russian bank. Regardless of the outcome, Empreno plans to pursue all available remedies to save its UK arm. This situation will be closely watched.
A number of international sanctions are aimed at blocking Moscow’s financial system. The European Union, the United States, and the United Kingdom have recently agreed to impose new sanctions on five Russian banks. Some of these new sanctions are linked to the discovery of Russian war crimes in Ukraine. The Russian bank VTB’s UK arm is due in court today to request a special administration order. Ultimately, the bank is likely to go into administration, which would be a disastrous move.
Several other companies in the UK rely on the Russian market, and this latest announcement is unlikely to end well for them. Sova Capital and Sberbank are both examples of such companies. Further announcements will likely follow in the coming weeks. However, this latest development may help to protect the wider market from further damage. The Russian banking system is a complex one and this is the most recent example.
There have been calls for Russia to cut off from SWIFT, the global messaging system. The removal of Russian banks from this system would hurt their business in the short term and lead to a global financial crisis. Moreover, it would likely lead to a decline in the value of the ruble, which has dropped 30% this week. The government and European allies should impose a comprehensive approach to preventing Russia’s financial collapse.
Meanwhile, the UK food industry faces permanent shrinkage and a broader crisis. If the government fails to resolve the labor shortages, it could lead to a further increase in prices and wage levels. And failure to solve the underlying causes will only lead to higher prices and a lower level of competitiveness. In the meantime, the British food industry is worth around PS100bn. Moreover, the EU has banned all Russian coal exports and banned road transport operators from the EU. The resulting embargo will also require de-SWIFTing of Russian banks. So, a tough choice must be made in this time.