The European Central Bank is poised to order Italy's UniCredit (CRDI.MI) to cut back its business with Russia, two people with knowledge of the discussions said, as the regulator exerts pressure to choke off European financial ties with Moscow.
The demands on the second-biggest European bank in Russia would be similar to what the ECB wants from Austria's Raiffeisen Bank International (RBI) (RBIV.VI), the largest Western bank active in the country, the people told Reuters, requesting anonymity because the matter is confidential.
The ECB and UniCredit declined to comment.
After months of discussions, the ECB is set to send UniCredit a legally-binding order, the sources said, in a significant increase in pressure to pare back its Russia business. This is the penultimate step before the ECB can impose penalties, such as fines.
A formal ECB warning to UniCredit would offer Italy's second-largest bank a final opportunity to avert such an enforcement procedure by the supervisor that could lead to sanctions, another person with knowledge of the situation said.
Two years after Russia's full-scale invasion of Ukraine, European regulators are ratcheting up pressure on its lenders as the conflict shows no sign of abating.
Western countries have been tightening sanctions on Russia and the Group of Seven industrial democracies is now studying ways to harness frozen Russian sovereign assets to help fund Ukraine.
Yet two of the region's big banks, RBI and UniCredit, continue to do business in Russia, drawing scrutiny too from authorities in the United States, people with knowledge of the matter have told Reuters.
Both banks have been in Russia since the collapse of the Soviet Union more than three decades ago.
Shares in UniCredit extended losses slightly after the Reuters report, and were last down 0.9%, underperforming the broader market (.SX7P).
UniCredit CEO Andrea Orcel in February said the bank's strategy on Russia remained unchanged, and that the Italian lender is continuing to scale back the business.
The bank's Russia unit reported pre-tax profit of 890 million euros in 2023, about 7.7% of the group's total. That compares with pre-tax profit of 210 million euros in 2021, before the war broke out.
Though the Russian unit's loans halved from the previous year and the number of employees dropped by about 8% to about 3,150, revenues rose 17% yearly at constant currencies as bank fees increased.
SLOW PROGRESS
In June, Andrea Enria, the then chief of the ECB's supervisory arm, told the European Parliament that he had "repeatedly and publicly expressed concerns about the disappointingly slow progress" by banks in reducing their business in Russia.
He said the ECB had asked “banks to speed-up their downsizing and exit strategies by adopting clear roadmaps and by regularly reporting to their management bodies and to ECB Banking Supervision on the execution of these plans.”
The next step from the ECB would suggest this lack of progress has continued despite months of discussions, prompting the regulator to prepare to impose a legally binding order on the banks.
RBI had missed several ECB deadlines, another person familiar with the ECB's thinking told Reuters.
Leading governance adviser Glass Lewis has urged UniCredit shareholders to be "mindful of the company's continuing operations in Russia".
Firms still exposed to Russia can expect "increased stakeholder scrutiny of their approach," possibly leading "to material reputational damage that may impact on shareholder value," the adviser has said, as reported by Reuters earlier this month.
