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Global finance grapples with Ukraine crisis as shares slump

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© Reuters. FILE PHOTO: A Deutsche Bank logo adorns a wall at the company’s headquarters in Frankfurt, Germany June 9, 2015. REUTERS/Ralph Orlowski
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By Tom Sims and Iain Withers

FRANKFURT/LONDON (Reuters) -Europe’s financial sector saw heavy share falls on Thursday as it grappled to respond to Russia’s invasion of Ukraine, including Allianz (DE:ALVG) disclosing it had frozen its Russian government bond exposure.

British lender Lloyds (LON:LLOY) said it was on “heightened alert” for cyberattacks and Deutsche Bank (DE:DBKGn) said it had contingency plans in place as European officials warned of further sanctions on Russia.

Shares of leading banks sank. An index of European banking stocks was down 6.8% at midday, steeper than a 4.4% fall in the Euro Stoxx index.

Banks with significant operations in Russia were particularly hard hit, with Austria’s Raiffeisen Bank International down 17% and Societe Generale (PA:SOGN) losing 10.8%.

Shares in UniCredit, whose Russian arm is one of the largest lenders in the country, fell as much as 9%, before triggering an automatic trading suspension. The lender said its Russia “exposures are highly covered”.

Russian forces invaded Ukraine by land, air and sea on Thursday, confirming the worst fears of the West with the biggest attack by one state against another in Europe since World War Two.

European banks are the world’s most exposed to Russia – especially those in France, Italy and Spain, which far outstrip U.S. banks’ exposure, data from the Bank for International Settlements shows.

German regulator BaFin said it was keeping a watchful eye on the crisis.

European Union leaders will impose new sanctions on Russia, freezing its assets, halting access of its banks to the European financial market and targeting “Kremlin interests” over its “barbaric attack” on Ukraine, senior officials said on Thursday.

But in what will be a relief to Europe’s banks, the European Union is unlikely at this stage to take steps to cut Russia off from the SWIFT global interbank payments system, several EU sources said.

Both Deutsche Bank and Allianz – two of Europe’s most important financial firms and both with operations in Russia – said they were ready to comply with sanctions.

Allianz, one of the world’s biggest asset managers, said that the share of Russian government bonds in its portfolio was “currently very low” and that it had recently implemented a freeze on those securities.

Deutsche Bank, like many lenders in recent years, has reduced its presence in Russia as sanctions on the country have expanded.

“We have contingency plans in place,” the bank said in a statement. A spokesperson declined to elaborate on the plans but said “risks are well contained”.

The lender’s shares were down more than 8.6%, one of the biggest declines among German blue chips.

Lloyds chief executive Charlie Nunn told reporters that it was on “heightened alert… internally around our cyber risk controls and we’ve been focused on this for quite a while.”

Preparation for potential cyberattacks was discussed in a meeting between the government and banking industry leaders about Russia on Wednesday, Nunn added.

Lloyds has been on heightened alert for the “last couple of months”, Nunn said.

RBI, which this month said it had earmarked 115 million euros in provisions for possible sanctions on Russia, said on Thursday, as its shares dropped sharply, that it was “premature to assess” the impact on its business and that its banks in Russia and Ukraine were “well capitalised and self-financing”.

Italian heavyweight Intesa Sanpaolo (MI:ISP), which has financed major investment projects in Russia such as the ‘Blue Stream’ gas pipeline or the sale of a stake in oil producer Rosneft, fell 8%.

While many bankers have played down the importance of Russia to their operations, Russia is tightly linked to the European economy.

Russia is the European Union’s fifth-largest trading partner, with a 5% share of trade, data show. The U.S.’s trade with Russia is less than 1% of its total.

Some of the region’s top bankers have been more concerned about the potential secondary effects of the crisis.

The boss of HSBC, one of Europe’s largest banks, said this week that “wider contagion” for global markets was a concern, even if the bank’s direct exposure was limited.

Europe financial sector shores up defences as Ukraine crisis slams shares

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