UniCredit's $500M Asset Seizure: Balancing Sanctions and Profits in Russia.

On May 16, 2024, a commercial court in St. Petersburg issued an interim measure to seize assets worth EUR 463 million from UniCredit, the second largest European bank still operating in Russia. The ruling is part of an ongoing dispute between a Gazprom subsidiary and a German engineering company that suspended Gazprom-related construction work in 2022 due to the Western sanctions. UniCredit was one of the bank guarantors for the German contract with the Russians. 

The Italian bank says paying the Russian company will violate European sanctions while the Russians cite the same sanctions as the reason they need to seize UniCredit assets. As the court documents state, “due to sanctions, the Defendant [UniCredit] is taking measures to withdraw its own assets from the Russian Federation” so the Gazprom subsidiary needs to take this step to secure chances of the payment while there are still UniCredit’s assets in Russia.

Earlier this spring, the European Central Bank ("ECB") wrote European lenders still active in Russia, telling them to cut ties with the country. Austria’s Raiffeisen, by far the largest Western bank in Russia, was told by the ECB to reduce lending and payments in Russia by 65% in the next few years. Should the Italian bank fail to scale down in Russia, UniCredit may be issued a legally binding order by the ECB , with penalties and fines to follow. 

The ECB is concerned that the European banks still operating in Russia may become subject to US sanctions, as the US regulators appear to be monitoring the situation closely. It is a difficult choice for the likes of UniCredit:  its Russian arm earned significant profits in 2023 and doubled its profits in the first quarter of 2024. Nonetheless, the latest asset seizure by the Russians may help UniCredit make the hard decision to scale down in Russia. 

As the Europeans significantly reduce their presence in Russia, it will be harder for European industry to transact with the Russians, in effect making the sanctions more effective. With increasing scrutiny by financial regulators, it behooves companies with Russian exposure to pay closer attention to their points of vulnerability, both operational and reputational.