March 10, 2022
As the Russian government’s war of choice is close to one week old, the Austrian headquartered Raiffeisen Bank’s $30 billion exposure to Russia puts downward pressure on its share price, which has collapsed more than 50% in the past three weeks.
The $4.8 billion market cap bank has specific policies supporting the European Convention on Human Rights and against financing “business with products that are intended to be used for abolition of demonstrations, political unrest or other violations of human rights” (effective January 2020, Raiffeisen Bank’s International Code of Conduct, p. 10).
Yesterday, March 1, six days into the Russian government’s war of choice, Austria’s largest bank canceled its planned 2021 dividend payment of €1.15 a share, as sanctions have hit the bank’s core business in Russia, which earns about 30% of its pre-tax profit. About 11% of the bank’s loans valued at $12.9 billion are in Russia.
Raiffeisen’s actions do not match the rhetoric despite this robust policy. And the numbers may explain why. Russia is the bank's number one market in the region, generates more than 30% of total pre-tax profit, and makes up 11% of its loan portfolio with a value of 11.6 billion euros. [Source: Bloomberg Intelligence]
Raiffeisen's slide presentation at its February 2022 earnings call illustrated that its ROE from Russia was greater than 20% annually since 2014, when the Russian government seized Ukrainian sovereign territory in Crimea.
During the call, analysts raised the risk associated with Raiffeisen’s Russia operations multiple times.
Johan Strobl, Chairman of the Management Board and CEO, preemptively declared that Raiffeisen Bank has a robust monitoring system in place and has “quite a lot of experience how to deal with sanctions operationally, technically.”
He continued, “But just as an update for you, we have a loan portfolio in Russia, which is €11.6 billion. [...] And if we follow the sanction language of international community, then you see that we also have some exposure with potential targeted legal entities in Russia.”
In response to a question about the worst-case scenario, Raiffeisen Bank Chief Risk Officer Hannes Mosenbacher observed, “the worst cases would be if people, human beings would be physically impacted by this very, very challenging situation.”
And here we are.
The U.N. is reporting 660,000 refugees have fled the war as of February 28, 2022.
Raiffeisen believes it is resilient enough to handle the economic shock of Russia's war machine. Still, little is clear about the bank's commitment to its human rights policy in Raiffeisen Bank’s International Code of Conduct, which became effective January 2020. Since Raiffeisen Bank’s policy became effective, the bank's investment banking division raised $449 million in capital for Russian companies.
Finally, despite Raiffeisen’s role as one of the last functioning non-Russian banks in Russia, the bank has not stated anything publicly on its homepage about efforts to support the hundreds of thousands of refugees in Central and Eastern Europe where it conducts its business or how the bank will apply its International Code of Conduct it enforced January 2020.