Russia as cash cow – half of foreign money flows through RBI

A year after the outbreak of the conflict in Ukraine, RBI still has a significant presence in Russia, the Financial Times reports. At the beginning of February, the bank reported that it had made a profit of 3.6 billion euros in 2022, compared to 1.4 billion euros in 2021. Of this, 2.2 billion euros, more than 60 percent, was attributable to the Business in Russia and Belarus. -Russia – quadrupling from 2021.

Stocks plummeted, earnings soared
“On the one hand we have very, very good results, but on the other hand we have huge problems,” said CEO Johann Strobl. The market has made its take on this dichotomy clear, with stocks down more than 40 percent from their pre-invasion peak in February.

However, due to its activities in Russia, RBI has now also attracted the attention of politicians. After Ukraine recently imposed sanctions on the bank, the US Treasury Department is now investigating its business with Russia. Although there is no evidence of wrongdoing, this is an indication that Raiffeisen is being targeted by regulators and politicians.

Raiffeisen with an important role in the country
Raiffeisen is not alone in this: many Western companies remain in Russia. These include banks such as HSBC, Barclays, and Bank of America. But Raiffeisen is distinguished both by the size of its operations and by its role at the center of the activities of other remaining companies: Raiffeisen, a senior banking official told the Financial Times, today routes 40-50 percent of all money flows between Russia and the rest of the world.

No one else “so deeply embedded”
In any case, the company faces a dilemma, the RBI gets a large part of its profits in Russia and Belarus. “No other Western bank is so deeply embedded in the Russian financial system,” explains Marcus How, head of the research department at Viennese risk consultancy VE Insight.

The Ukrainian ambassador to Austria is even more open: Raiffeisen’s profits are “stained with blood,” Wassyl Chymynez said in January, when it was revealed that the bank was providing special loans to Russian soldiers as part of a program ordered by the Kremlin. Under this arrangement, soldiers who die in battle are automatically forgiven their debts. Raiffeisen has about 7 million euros outstanding in loans for Russian military personnel.

Profits are tied up in Russia
Raiffeisen’s commitment stems from the fact that the Kremlin blocked the withdrawal of foreign companies as soon as possible after the invasion. Dividend payments to the parent companies are therefore prohibited and the profits remain in Russia. To that end, companies from “unfriendly” countries – including Austria – must have any sale of Russian subsidiaries approved directly by the Kremlin.

The official criteria for such approval are difficult to master: a company’s value is determined by the Russian authorities and is subject to a 50 percent discount. The seller can then choose to receive the money in installments over several years, or make a “voluntary donation” of 10 percent of the transaction value directly to the Russian government.

“We are completely divided strategically”
“We are completely divided strategically,” said a Raiffeisen manager, but behind the scenes the decisions had already been made. Raiffeisen has cut ties with about three dozen major Russian clients – oligarchs and corporations – since the start of the invasion. In the past year, the company has reduced its loans to Russian companies by 30 percent.

The book value of Raiffeisen’s Russian subsidiary is 4.1 billion euros. The bank values ​​them at just under 1 billion euros. Two senior Western bankers who have tried to negotiate an exit for Western banks said an offer to buy the company for more than 0.2 times its book value was highly unlikely.