Settling intercompany invoices emerges as the best option for some members to quickly reduce deposit balances in Russia.
A major US bank used by scores of NeuGroup member corporations in Russia has recently been making strong recommendations to some of them—in conversations, not in writing—that they find alternatives to the bank as the war with Ukraine enters its third month and the bank further reduces its exposure to Russia.
- This development sparked discussion among members about contingency plans and how to reduce deposit balances at this week’s NeuGroup session on the fallout for finance teams from sanctions, counter-sanctions and the decision by hundreds of companies to suspend operations or leave the region altogether.
- Despite the growing exodus, some corporate ties to Russia remain strong. In a poll to begin the session, 96% of member companies responding said they are still paying staff in Russia—a key reason corporates need banking services in the country.
Reducing balances, cutting credit. The big US bank is advising corporates to reduce their deposit balances in Russia, in one case requesting a member company cut the amount it holds at the bank in half in the next week or so. A member at a different company said, “What I heard is that for companies that have a lot of cash sitting there, they’re trying to really get their balances down.”
- The bank asked another company in a recent conversation about its plan to reduce balances and exposures, which the corporate shared with the bank.
- Members agreed that one of the best options to reduce balances—the only one for some companies—is the settlement of intercompany invoices. One company transferred several hundred million dollars out of Russia by one affiliate paying another for overdue invoices.
- The member said the large US bank was “really helpful” and processed the transaction very quickly, motivated by the bank’s desire to reduce its exposure to Russia.
- Several members said their uncommitted lines of credit in Russia have been cancelled or frozen by the bank. “It didn’t really affect us because we didn’t plan on using it anyway,” one member said about a cancelled line of overdraft protection.
Outlook is day by day. The bank’s inability to predict whether it will at some time in the future be subject to sanctions or counter-sanctions means its ability to do business in the country could change “from one day to another,” according to one member.
- Others had heard a similar message, with one member saying the bank is communicating clearly that what it can do today may change tomorrow. “They are very, very careful to caveat that this is as of today. And this could change at any time.”
- For another member, change is coming by the end of June, when his company’s primary bank is planning to leave Russia, news he got a few weeks ago. His backup bank, he said with slight laugh, is the big US bank other members had spent much of the session discussing.
Other banks? In one breakout session, members expressed interest in possibly opening accounts at Rosbank, the Russian bank Societe Generale sold to Interros Capital, controlled by billionaire Vladimir Potanin, a Russian oligarch. He has been sanctioned by Canada, but he and the bank have not been sanctioned by the EU or US—a situation members are following closely.
- The member contemplating the exit from Russia of both his primary and backup bank summed up the situation facing corporates that plan to stay in Russia. “Companies are going to have to figure out what local Russian banks they’re comfortable with and try to form some strategic partnerships,” he said. “And then cross your fingers that they don’t become sanctioned banks.”