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Brexit a smokescreen as VTB scales back London business, analysts say


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Brexit a smokescreen as VTB scales back London business, analysts say

Brexitmay just be a smokescreen for JSCVTB Bank as it considers relocating its London-based Europeanheadquarters, according to analysts.

The Russian bank's deputy chairman and CFO, Herbert Moos,told the Financial Times that,following the U.K.'s decision to leave the EU, VTB is scaling back its business in the British capital andconsidering other locations for its European base, including Vienna — where thelender has a subholding that operates its Austrian, French and German units —and Frankfurt.

A VTB spokesperson told S&P Global Market Intelligenceby email that, while the bank does not intend to close its U.K.-based business,"VTB will be adjusting its activities in London" because of Britain'svote to leave the EU and might relocate "depend[ing] on how Brexitunfolds."

Several major international banks have hinted that they willmove large numbers of staff out of London because of Brexit, but VTB — which is61%-owned by the Russian state and employs several hundred people in theBritish capital — is the first to publicly state its intention to do so.The lender runs a number of key operations from London, including complianceand anti-money laundering teams, while its wealth management arm also has apresence there.

Yet according to Christopher Weafer, co-founder ofMoscow-based consultancy Macro Advisory, a lack of IPOs and debt issuance viaLondon due to sanctions against Russia are a more likely motive than Brexit forVTB scaling back operations in Britain.

The EU imposed economic sanctions against Russia in July2014 in response to the military invasion of Ukraine. These also restrictcertain Russian banks' access to debt in EU financial markets. Thishas resulted in a dearth of deals for VTB to work on, Weafer said.

"Their business plans have been completely destroyed bysanctions," he told S&P Global Market Intelligence. "There havenot been any IPOs since 2014. They don't see the possibility of making money inLondon in the next couple of years."

Too muchscrutiny

The proposal to relocate may also be a reaction to what VTBperceives to be excessive policing of its activities in the U.K., Weafer said. "Therehas been a high level of scrutiny from the Bank of England. It's looking a lotmore closely at any Russian-related business as a result of sanctions andDeutsche Bank AG."

In December 2015, the German lender said suspicious tradesat its Russian unit amounted to as much as $10 billion, and in March, the U.K.'s Financial ConductAuthority criticizedthe bank for "systemic" failure in trying to prevent money laundering.

Moving VTB's European headquarters out of London would be a"logical" step prompted by both Brexit and sanctions, a Moscow-basedanalyst told S&P Global Market Intelligence, speaking on condition ofanonymity.

"The wealth management business is a big reason for VTBto be in London, but Brexit may make it less attractive a market for wealthyRussian clients," he said. "However, I don't think Brexit is the realreason for this announcement. It's created a reason to take a look at theLondon operation. I've not seen the figures, but this seems to be a loss-makingbusiness."

Russian retreat

This is not the first time that VTB has spoken of scalingdown its London presence. In November 2014, CEO Andrey Kostin voicedhis displeasure with the London Stock Exchange's position on sanctions and saidhe was considering a delisting.

Moos' announcement comes justmonths after two other Russian banks, PAO Sberbank of Russia and AOGazprombank, were reportedly preparing to their respective London-basedinvestment banking activities.

VTB's spokesperson told S&P Global Market Intelligencethat the decision on the location of the company's European headquarters"is being carefully considered and will be confirmed as part of ourstrategy for 2019."