UBS reveals $10 million of loans to sanction-hit clients

Banks are busy figuring out how to unwind their positions in Russia. Keystone / Martin Ruetschi

UBS has revealed it has $10 million of loans outstanding to clients hit by western sanctions imposed in response to Russia’s invasion of Ukraine.

The Swiss lender also announced in its annual report on Monday morning that it has around $200 million of exposure to Russian assets used as collateral in Lombard lending, which are loans secured against a portfolio of liquid assets like equities and bonds, and other secured financing.

The world’s biggest wealth manager said that its direct risk exposure to Russia was $634 million at the end of 2021, out of its total emerging market exposure of $20.9 billion.

By comparison, Austria’s Raiffeisen reported a direct exposure to Russia of €22.9 billion ($24.9 billion) while France’s Société Générale and Crédit Agricole reported €18.6 billion and €4.9 billion of exposure, respectively, and ING of the Netherlands reported €6.7 billion.

European bank share prices tumbled on Monday morning as western allies considered a ban on importing Russian oil.

The Stoxx Europe 600 Banks index fell 5%, as Raiffeisen was down 9%, while UBS, SocGen and ING all fell 8% in early trading.

Oligarch funds

Russian oligarchs have long favoured Swiss wealth managers due to the country’s stability and secrecy laws. Russian wealth accounts for about 1% of annual foreign direct investment into Switzerland.

But the Swiss government’s decision last month to break its tradition of political neutrality and match EU sanctions has made the country’s banks much less attractive to oligarchs.

“We are working to implement sanctions imposed by Switzerland, the US, the EU, the UK and others — all of which have announced unprecedented levels of sanctions against Russia and certain Russian entities and nationals,” UBS said.

Western banks have steadily been reducing their business in Russia over the past eight years following the country’s annexation of Crimea, but those that have maintained significant operations in the country have been hit hard in recent weeks.

Asset freezes

Western sanctions have choked Russia’s economy, leading to a plunge in the value of the rouble and a jolt in interest rates.

Asset freezes imposed by western allies on several Russian banks, with seven due to be cut off from the Swift global payments messaging system this week, have also affected global banks that transact with them.

“UBS is also currently monitoring settlement risk on certain open transactions with Russian banks and non-bank counterparties or Russian underlyings, as market closures, the imposition of exchange controls, sanctions or other measures may limit our ability to settle existing transactions or to realise on collateral, which may result in unexpected increases in exposures,” the bank said.

UBS added it had $51 million of assets in its Russian subsidiary.

Archegos losses

Separately, the group revealed executives had suffered a 1% fall in bonuses for the year in reflection of the $861 million loss the bank made on the collapse of family office Archegos Capital, which was a prime broking client.

The overall bonus pool grew 10% following a stellar year in investment banking and wealth management, but it was also reduced because of the Archegos loss.

“Compensation was reduced by an amount equivalent to over half of the post-tax loss,” the bank said. “This reduction had a direct impact on compensation for business and control functions, as well as for the group executive board.”

Copyright The Financial Times Limited 2022