By Lawrence White, Alexandra Schwarz-Goerlich and Iain Withers
LONDON/VIENNA/WASHINGTON (Reuters) -European banks on Tuesday were bracing for fallout and fresh sanctions after Russia ordered troops into breakaway regions of eastern Ukraine, with HSBC warning of market contagion and Austria’s Raiffeisen Bank International preparing “crisis plans”.
In the United States, on the other hand, banking executives said the industry’s pullback from the Russian economy over the past eight years should insulate the industry from major pain.
Europe’s banks – particularly those in Austria, Italy and France – are the world’s most exposed to Russia, and for weeks have been on high alert should governments impose new sanctions against the country.
Britain was the first on Tuesday to move, hitting five banks and three high net worth individuals, a relatively mild package that British Prime Minister Boris Johnson said allowed him to “reserve further powerful sanctions” for whatever “Putin may do next”.
The European Union later on Tuesday also agreed sanctions on Russia that will blacklist more politicians, lawmakers and officials, ban EU investors from trading in Russian state bonds, and target imports and exports with separatist entities.
“This package of sanctions… will hurt Russia, and it will hurt a lot,” the EU’s foreign policy chief Josep Borrell told a news conference.
The United States is also preparing a sanctions package while German Chancellor Olaf Scholz said he was halting the certification of the Nord Stream 2 gas pipeline, an important future energy source for Europe’s largest economy.
Some experts questioned how effective Britain’s strategy of keeping its powder dry would be.
“I can see the strategic rationale of leaving some room to go further…. But is Putin going to care? I don’t think so,” said Paul Feldberg, a sanctions expert and partner at law firm Jenner & Block.
Since Russia’s annexation of Crimea in 2014, the United States and European Union have blacklisted specific individuals, sought to limit Russia’s state-owned financial institutions’ access to Western capital markets, imposed bans on weapons trade and other limits on the trade of technology, such as that for the oil sector.
That caused banks, particularly in the United States, to reduce their exposure to Russia, making some bankers less concerned about the threat of sanctions on their business and more focused on the market impact of geopolitical tensions.
The boss of HSBC, one of Europe’s largest banks, said on Tuesday “wider contagion” for global markets was a concern, even if the bank’s direct exposure was limited.
“It’s clear that there is a likelihood of contagion or some second-order effect, but it will depend on the severity of the conflict and the severity of the retaliation if there is a conflict,” Noel Quinn told Reuters in an interview.
U.S. banks, meanwhile, are not expecting global sanctions to have a major impact on American bank businesses or spark contagion risk, given lenders have little exposure to the Russian economy, said three executives familiar with industry thinking.
According to the Bank for International Settlements, U.S. lenders had outstanding claims of just $14.7 billion on Russia in the third quarter of 2021.
U.S. banks and financial industry lobby groups have held meetings with the Biden administration to discuss sanctions in recent days, two of the sources said. One said the administration had reached out to the industry before Christmas and had kept banks apprised of its thinking.
This person added that one area of potential concern was the disruption that might be created if the U.S. targeted Russia’s access to the SWIFT international payment network, although that is seen as unlikely.
The Biden administration said last week sanctions targeting Russia’s access to SWIFT, which could hurt everyday citizens depending on how they were crafted, were unlikely to be in the initial package.
“We are wholeheartedly in support of peaceful diplomatic solutions. If sanctions have to be imposed, we support minimizing the effect on the average consumer’s ability to buy groceries,” said Scott Talbott, a senior vice president at Washington trade group the Electronic Transactions Association, which represents several major payment companies.
CONTAGION FEAR
RBI, which has big operations in Russia and Ukraine, said business was now normal, but “in the event of an escalation, the crisis plans that the bank has been preparing over the past few weeks will come into effect”.
Shares in the Austrian bank were down 5.5% by 1219 GMT.
Dutch lender ING, which has a large presence in Russia, said: “A further escalating conflict could have major negative consequences.”
One Danish pension fund said it would immediately halt new Russian investments in the wake of Putin’s move into Ukraine.
With policymakers scrambling to put together sanctions packages, the German banking association said they must ensure they were “precise and unambiguous”, removing any room for interpretation that could make it hard for financial firms to implement them.
(Additional reporting by Iain Withers and Tommy Reggiori Wilkes in London, Toby Sterling in Amsterdam, Michelle Price and Hannah Lang in Washington, and Matt Scuffham in New York; Writing by Tom Sims; Editing by Madeline Chambers, Jan Harvey, Tomasz Janowski and Jonathan Oatis)