Exclusive: Clients ask top custodian banks to stay in Russia

LONDON/NEW YORK, March 23 (Reuters) – Global banks including Citigroup Inc (CN), JPMorgan Chase & Co (JPM.N) and Societe Generale (SOGN.PA) are under pressure to pledge to remain as than custodian banks in Russia, as rivals and funds fear losing services critical to future investment in the country.

Traders, bankers and executives from three other financial institutions told Reuters they were seeking or had requested assurances on behalf of clients about each bank’s long-term plans for these businesses, which clear, settle and protect billions of dollars in Russian assets.

Custodian banks have departments that look after assets for clients for a fee.

A London-based banking source, speaking anonymously to respect the privacy of their large global funds client, said they were in weekly contact with senior executives at Citibank Moscow about the status of their depository business.

The source said their client was waiting to trade Russian stocks when the Moscow Stock Exchange (MOEX) reopened, but needed reassurance that they had a Western custodian in place.

According to the source, Citigroup executives said they would serve their customers as long as the sanctions allowed.

A source with knowledge of Citi said major US and international companies in Moscow use the bank and cutting off those customers would hurt customer relations. Other bankers said it was crucial for the industry that Citi, a key player, continue to operate in Moscow.

Citigroup declined to comment.

A second banker, based in New York, said he had asked SocGen for assurances that it would “stay on the ground” so his bank could meet custodial obligations to customers. SocGen executives have assured that they will, at least in the short term, the source said.

Citigroup and SocGen, the French parent company of Rosbank (ROSB.MM), have already announced plans to drastically reduce their operations in Moscow as part of a sweeping Western sanctions program aimed at economically isolating Russia after its invasion of the EU. ‘Ukraine. Read more

Both banks said they would help their clients with the complex tasks of unwinding or reducing exposures to Russia, and said withdrawals would take time to execute.

But neither has made a public statement about the long-term status of their custody services, leaving some customers worried about the future.

In an emailed statement, a SocGen spokeswoman said the group was “conducting its business in Russia with the utmost caution and selectivity, while supporting its historical customers.”

SocGen “strictly adheres to all applicable laws and regulations and diligently implements the necessary measures to strictly enforce international sanctions as soon as they are made public.”

The bank declined to comment specifically on its custody business in Russia.

JPMorgan Chase & Co (JPM.N) also provides similar custodial services from its Moscow outpost. The bank has received inquiries from customers asking for assurances that custodial services will continue to be provided, according to a source familiar with the matter. It has previously stated that it will continue to act as custodian for its clients.

Bank of New York Mellon Corp (BK.N) also said it would continue to provide custody services in Russia.

EXCLUDE

If banks decide to mothball their custody services in Moscow, many Western investors already holding Russian stocks or bonds would have to look elsewhere for a bank to hold those assets, while others wanting to tap into a financial market or an economic recovery when sanctions are lifted could find it harder to pursue those plans.

SocGen, France’s third-largest bank, warned stakeholders on March 3 that it could be stripped of ownership rights to its Russian business in a “potential extreme scenario.” Read more

Citi, meanwhile, initially said it would operate its Russian business on a “more limited basis” following the war, which President Vladimir Putin has called a “special military operation”.

But by March 14, he said he would accelerate and broaden the scope of that retreat by dropping his institutional and wealth management clients in Russia. Read more

Besides transaction services, many Moscow-based custody teams provide add-ons such as language translation of central bank documents that are also highly valued by Western clients, the source said.

Russia’s central bank said separately on Wednesday that some stock trading would resume on Thursday, with 33 stocks to be traded on the Moscow Stock Exchange for a limited period and short selling banned. Read more

The challenge for banks to meet their obligations to customers in Russia is growing increasingly difficult and could become even more daunting if sanctions are tightened, with the first month of the invasion falling this week.

Russia has established tough new rules for foreigners seeking permits to buy and sell Russian assets ranging from securities to real estate. Read more

Another New York-based banker described the business of ensuring clients comply with held securities sanctions as a “logistical nightmare” and said his firm had hired 20 new compliance staff in recent years. weeks.

Global companies, banks and investors have so far disclosed nearly $135 billion of exposure to Russia, according to company statements. Read more

U.S. asset managers including Vanguard and Capital Group Companies Inc, which runs the American Funds franchise popular among millions of mom and pop retirement savers, also disclosed large exposures exceeding billions of dollars, according to the reports. latest portfolio available. Read more

Reporting by Sinead Cruise in London, and Matt Scuffham and Megan Davies in New York Additional reporting by Paritosh Bansal in New York Editing by Matthew Lewis

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