Germany’s Deutsche Bank has informed its clients that it can no longer guarantee full access to their investments in Russian stocks. In a circular dated June 9, the bank revealed a shortfall in the shares backing its depositary receipts (DRs) that were allocated before Moscow’s military operation in Ukraine. These shares have been held in Russia by a different depositary bank, making them inaccessible to Deutsche Bank.
The shortfall is a result of Moscow’s decision to allow investors to convert some DRs into local stock. This conversion occurred without the involvement or oversight of Deutsche Bank, leaving the bank unable to reconcile the company shares with the DRs. The affected shares include those of national airline Aeroflot, construction firm LSR Group, mining and steel firm Mechel, and Novolipetsk Steel.
Irina Tsukerman, president at geopolitical risk consultancy Scarab Rising, commented on the situation, stating that “literally everything in Russia has been vulnerable, whether it’s these DRs, equities, real estate, or any other form of financial asset.” She added that this news should come as no surprise, given the current state of affairs in Russia.
The conversion of shares into local stock was carried out in accordance with Russian legislation, according to Russia’s National Settlement Depository. However, the depository clarified that it was not responsible for implementing this mechanism.
Deutsche Bank has now allowed investors to swap their DRs for shares as part of its plans to exit all Russia business. The bank believes that clients could be in a better position if they can convert their DRs, at least partially. However, Deutsche Bank cautioned that the net proceeds from sales of shares it was able to return to investors would likely be substantially lower than the current market price.
The bank also highlighted that Russia’s Government Commission for Control over Foreign Investments requires the sale of such shares at a discount of at least 50% from their appraised market value. This requirement further complicates the situation for Deutsche Bank and its clients.
The article also mentions the consequences of the Ukraine-related sanctions imposed on Russia by the West, as well as the countermeasures taken by the Kremlin. These sanctions have left assets held by citizens and companies, both in Russia and abroad, stranded.
The situation with Deutsche Bank and its clients further underscores the challenges faced by financial institutions operating in Russia under the current geopolitical climate. Clients may find their investments heavily impacted by the sanctions and political tensions between Russia and the West.
In conclusion, Deutsche Bank’s disclosure regarding the lack of access to clients’ investments in Russian stocks highlights the complex nature of doing business in Russia amidst geopolitical tensions. As the situation continues to evolve, financial institutions and investors must navigate uncertain waters to protect their interests and make informed decisions.