UniCredit questions ECB order to reduce operations in Russia

Italian bank UniCredit has filed a legal challenge questioning a European Central Bank order to reduce its operations in Russia.

UniCredit, which has the second-biggest exposure to Russia among western banks, was one of several Eurozone lenders to receive a letter from the ECB in May, ordering them to speed up their withdrawal from the country.

On Monday, UniCredit said it had applied to the EU’s General Court to seek clarification on the ECB request. It added that it had asked to be allowed not to comply with the request while its application was being heard.

UniCredit said it had “concerns about the terms [of the ECB’s request that went] . . . beyond the current legal framework”.

A person with knowledge of the bank’s view said that while UniCredit was not trying to avoid complying with the ECB request, it wanted to make sure that in doing so it was not breaking sanction rules or laws in countries, including in Russia.

The ECB declined to comment.

Since Russia’s invasion of Ukraine two years ago, Western banks have come under pressure from politicians and regulators to pull out of the country. While banks such as France’s Société Générale have left, taking a large financial hit, a handful have stayed in the country and argued they are winding down their operations.

Announcing its legal challenge on Monday, UniCredit said it had reduced its cross-border exposure to Russia by 91 per cent and its domestic exposure by 65 per cent since February 2022.

While the Russian business has been increasingly isolated from the parent company over the past two years, UniCredit restarted repatriating profits from the subsidiary last year.

In order to do so, UniCredit was required to make a request to Russian authorities, which allowed the payment of up to half of its subsidiary’s net profits, as long as it paid local taxes. Last year, UniCredit received €137mn from its Russian subsidiary.

The ECB made the request to Eurozone banks to speed up their exits because of worries they could be hit by punitive measures from US regulators, which have taken a tougher line on Western companies still operating in Russia, the Financial Times reported at the time. 

The decision to tell banks to scale back their activities in Russia was taken by the ECB’s supervisory board, which oversees the EU’s biggest lenders. If banks refuse to comply, they can in an extreme scenario be stripped of their licence under EU law. 

UniCredit said on Monday that it had informed the ECB of its legal challenge.

“Unprecedented circumstances, the complexities inherent in the geopolitical and economic scenario and the lack of a harmonised regulatory framework applicable to it and the potential for serious unintended consequences of implementing the decision that would impact not only the Russian subsidiaries but UniCredit, compel the board of directors of UniCredit to seek . . . clarity and certainty,” the bank said.

In an interview with the FT published last month, UniCredit chief executive Andrea Orcel said: “Selling or extracting yourself from Russia by selling your bank or by finding other schemes is extremely complicated because you need to fit in an ever-diminishing grey area where you fit the political will and avoid the sanctions of both sides.

“It doesn’t mean we stop trying. We’re constantly looking at alternatives, but the probabilities are low.”

UniCredit has also been hit by a St Petersburg court ordering the seizure of €463mn of assets from its Russian business, following a dispute with Gazprom subsidiary RusChemAlliance.