For the "daughter" of VTB in the UK approved a plan to curtail business

External managers intend to sell the assets of VTB Capital in order to settle accounts with creditors and counterparties.Debts to them exceed £800 million

The obligations of VTB's subsidiary in the UK - VTB Capital - to creditors amount to about £804 million, follows from the published calculations of the bank's external managers - Teneo Financial Advisory Ltd - which RBC studied. In the document, the managers describe a strategy for further work with the assets of VTB Capital, some of which were frozen due to sanctions against the VTB Group in February 2022.

“As a result of sanctions imposed by Western countries, VTB has been deprived of operational control over the British division of VTB Capital Plc. This measure on the part of the UK is dictated solely by political motives and has nothing to do with either market or legal norms, ”a VTB representative told RBC.

How sanctions paralyzed the business of VTB's British subsidiary

On February 24, 2022, RUSSIA launched a special military operation in Ukraine. On the same day, VTB Bank, together with its subsidiaries, came under blocking sanctions from the UK and the US . This effectively stopped the business of VTB Capital, a British subsidiary that was mainly engaged in investment banking and stock market trading.

On March 31, the Board of Directors of VTB Capital decided to transfer the bank under external management, as it lost the ability to service external obligations and lost access to funds in correspondent accounts. Such a move was taken despite the fact that VTB Capital "had sufficient liquidity and assets," according to the report of the managers. On April 6, an application to start the procedure was filed with the High COURT of London, and in December it approved the transfer of VTB's British subsidiary under the management of Teneo Financial Advisory Ltd.

What will managers do with VTB Capital

Historically, VTB Capital has been the anchor bank for the international business of the VTB Group, but since 2018, a significant part of the operations have been transferred to VTB Europe in Frankfurt. In addition, as noted in the report of the managers, the main "trading corridor" of VTB Capital was in Russia, so the bank suffered from both Western sanctions and Russian counter-sanctions against residents of unfriendly countries.

Managers indicate that their goal is to meet the requirements of creditors by realizing available assets and wind down the business. First of all, they intend to sell all available unencumbered assets of VTB Capital, transactions with which are permitted under licenses from OFAC and OFSI - the American and British sanctions regulators. Transactions with other assets may require additional permits from the authorities of the European Union, the United States and other countries, the document says. It does not estimate how long it may take to obtain such permits, and it depends on what payments VTB Capital's creditors can expect. According to the report, VTB Capital, for example, has:

£152.5 million on accounts with the Belgian Euroclear, which acted as a depository in transactions with securities; £64.8m on accounts with the Russian National Settlement Depository (NSD). VTB Capital cannot receive these funds because it is a resident of an unfriendly country; £25.7m bonds and £14.7m shares in trading portfolio; Approximately £200m of unblocked monetary assets, of which £13.9m is already available; own securities worth £19m – an additional license is required for their sale, which has not yet been obtained; £350.3m in loans to customers. Read pioneerprodukt.by What they ask at an interview in IT: 6 non-standard questions for recruiters "Killed" intestines and resistance: important questions about antibiotics "I'm the boss - you're a fool." How collectives turn into "spider jars" Up to 10 years in prison:

The book value of the assets on December 6 last year was just over £1bn, but the managers at that time considered it possible to receive only 34.5% of this amount, or £362.5m.

In addition, the administrators expect to receive $35 million in insurance claims and $14.48 million in commissions due to VTB Capital from counterparties. The bank has 508 pending transactions that have not been settled, but may have some result. The managers also intend to sell the bank's office furniture and other property (their book value is £418,000, and the estimated value in the event of liquidation of the company is £100,000) and reduce office rental costs.

In April last year, the British sanctions regulator allowed the sale of VTB Capital's assets for bankruptcy purposes. Last November, a similar license was issued by the US OFAC, but it does not allow the transfer of property blocked in the US. Managers are preparing to conduct real estate transactions in the United States, and have also applied for permission to unlock assets from Euroclear. In the future, they intend to unfreeze the assets of VTB Capital in NSD and transfer them to Euroclear for further sale. Managers began to obtain licenses to operate assets in Switzerland, Luxembourg, France, Germany, Ireland, Cyprus and Bermuda.

In addition to the London office, VTB Capital had a subsidiary in Singapore - in December last year, its license was surrendered. The number of VTB Capital employees has been reduced to 41 people, some of them will continue to work to help with the sale of trading assets and securities on the balance sheet. Back in 2018, more than 200 people worked there.

As noted in the document, external management will continue for at least 12 months - until VTB Capital pays off creditors or until sanctions are lifted. Administrators expect to receive £1.3m for their services in 2022 and another £12m by the end of this year.

How will the settlements on the obligations of VTB Capital be carried out?

The managers are ready to start returning funds to VTB Capital clients "as soon as it is appropriate."

Individuals and companies from the segment of small and medium-sized businesses with account balances up to £85,000 are considered first priority creditors. There are not many of them: VTB Capital's obligations to this group of creditors are estimated at only £213,000. This group of creditors also includes employees of VTB Capital who are entitled to a salary. Second priority creditors include holders of deposits in the amount of £85,000 or more, as well as UK tax authorities. Liabilities to the former are estimated at £2.3 million, the bank has no tax debts. VTB Capital has 252 creditors that should be paid last. The debts to them are estimated at £802 million, and a significant part of this amount is due to the structures of the VTB group. As follows from the document, the British subsidiary owes £230 million directly to the parent bank VTB, another £46 million - to other structures of the group and £212 million - to the Cypriot company Crinium Bay Holdings Limited. The latter was associated with VTB Capital and VTB in the media. The representative of the group did not respond to a request from RBC whether Crinium Bay Holdings Limited is now part of VTB structures. In addition, VTB Capital has three creditors whose debts are secured by frozen assets. These are the London division of Citibank, the American JP Morgan Chase, and also the Morgan Guaranty Trust Company of New York (Euroclear).

What is left on the balance of VTB Capital

According to the results of 11 months of 2022, VTB Capital's net interest income amounted to $20 million, which is 29% higher than the result for 2021. Net fee and commission income fell 3.7 times to $29 million, while trading operations generated a loss of $3.9 million against a profit of $11.3 million in 2021.

During the reporting period, VTB Capital recorded a loss of $38.8 million, which is slightly more than the loss of 2021 ($36.3 million). However, the investment bank was chronically unprofitable: minus $63.9 million in 2018, minus $59.1 million in 2019 and minus $212.7 million in 2020.

As of November 30, the total assets of VTB's British subsidiary were estimated at $1.3 billion. During the 11 months of the crisis year, they sank by 28.2%. This was mainly due to the closure of correspondent accounts in other banks, getting rid of derivative financial instruments, investment and financial assets. The balance sheet liabilities of VTB Capital at the reporting date amounted to about $1 billion, which is 30.7% less than at the end of 2021. The total capital of the bank in January-November last year decreased by 18.5%, to $299 million.