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Russia’s Second Largest Bank to ‘Slightly’ Reduce Presence in Western Europe

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Russia’s Vneshtorgbank Group (VTB) is set to slightly reduce its presence in London and other offices in Western Europe because some of its lines of business in those areas are now redundant due to the imposition of sanctions, the bank’s head Andrei Kostin told reporters on Friday, RIA’s Russian language service reported.

MOSCOW, October 14 (RIA Novosti) - Russia’s Vneshtorgbank Group (VTB) is set to slightly reduce its presence in London and other offices in Western Europe because some of its lines of business in those areas are now redundant due to the imposition of sanctions, the bank’s head Andrei Kostin told reporters on Friday, RIA’s Russian language service reported.

Speaking to reporters in Washington, D.C. before the IMF and World Bank meetings that took place in the city, Kostin noted that the bank faces “restrictions on access to capital,” and as such “operations such as IPOs, share and bond issues in the international markets are being wound down significantly; therefore we will have to reduce [staff].”

The bank head made it clear that the reductions will be “slight,” and that while the bank reduces staff in its international operations, it will also be increasing some lines of business at home. “As a result, there won’t be a linear reduction of staff,” Kostin noted.

He also said that a “core” of people in international operations will be kept on, and that when a new, more positive environment “unfolds, in a year or two, the people who work in this area...will be in demand.”

Kostin’s comments were cleared for publication Monday.

Sanctions were levied against VTB, Russia’s second largest bank, by the United States and European Union this summer over the situation in Ukraine, limiting Russian access to Western capital markets.

London’s VTB Capital branch is the only Russian bank in the UK with a full license, and has been facing problems since the spring of this year from Bank of England regulators. These include regulatory demands which Kostin says are outside of the bank’s regular practice, VestiFinance cited him as saying. Still, Kostin notes that “normal dialogue” with Britain’s banking authorities continues.

Kostin also noted that relations with “the majority of our traditional banking partners,” including in the US, are still good and they are “ready to work with us.” Nevertheless, VTB’s investment banking arm, VTB Capital, will be reducing its operations to leave just a “boutique” unit in the United States, the company's chairman of the board of directors Soloviev stated, as quoted by Reuters.

2014 A Year of Reserves, Not Big Profits

Kostin noted that 2014 will not end as a year of big profits for the bank, and that VTB will be building up its reserves. “Our reserves will grow, and we will continue to create them, and we do not expect high profits this year,” he noted. Kostin remains confident that 2015 will see the bank develop “a good base and a healthy balance to demonstrate good results.”

VTB earned a modest 5 billion ruble profit (about 124 million USD) in the first six months of 2014, which is less than 20% of what the bank earned in the first half of 2013.

Negotiations on Alternatives to SWIFT

Kostin also told reporters that the bank is in negotiations with Sberbank (Russia’s largest state-owned bank) to create an alternative payment system to that of SWIFT (the Society for Worldwide Interbank Financial Telecommunications).

The bank head noted that the creation of such a system “is not complicated at all, and we are moving in that direction.” He pointed out that a system developed by the Central Bank already exists, but it is several times more expensive than SWIFT. The VTB co-developed system will be much cheaper, Kostin said.

The plans come after the European and American legislatures threatened to cut Russia off from the SWIFT system. Russia presently relies heavily on the payment transfer and processing system; it is second in the world after the United States in terms of the number of transactions carried out each day.

Investment to Return Once Sanctions Lifted

Kostin also told Russian television Channel One this weekend that "I think that if the sanctions are somehow reduced or lifted, a surge of interest in Russia can be expected, as well as a surge of investments." He added that "meetings ... in Moscow and here [in Washington] show that investors, including American ones, are ready to invest."

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banks, banking, profit, sanctions, VTB Capital, VTB, Andrei Kostin, Western Europe
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