Russia’s VTB Bank has become the first big lender to publicly say it will move its European headquarters out of the UK because of the disruption expected to be caused by the country’s decision to leave the EU.
Herbert Moos, deputy chairman and chief financial officer of VTB, said the board of the state-owned lender was considering several alternative locations for its European hub, including Frankfurt, Paris and Vienna and would decide later this year.
“We did have bigger plans for the London office, but after Brexit we are scaling them down and building them up elsewhere,” Mr Moos told the Financial Times. “Our board will decide where by the end of the year.”
Prime minister Theresa May has promised to trigger the process by which the UK will leave the EU by the end of March, setting a course to exit the bloc by 2019. Several big banks warned before June’s EU referendum that they could move thousands of jobs out of the UK in the event of Brexit, but there has been little sign of this happening so far.
Since the vote, most banking executives have stressed the need for the UK to maintain access to the single market for financial services and to agree a transition period to prevent this access being lost while a new trade deal is finalised.
As many as 71,000 jobs and about £10bn in tax revenues could be lost from the UK’s financial services sector and its wider support services if severe restrictions are imposed on the UK’s ability to trade with the rest of the EU, according to a report published this week by the consultancy Oliver Wyman for CityUK, the lobby group.
VTB employs several hundred people in London, including some centralised functions, such as its global anti-money laundering and compliance units. It also has offices in several other European countries, including Germany, France, Austria and Ireland.
“You cannot postpone this decision, as I do not think this [Brexit negotiation] will be a quick process,” said Mr Moos, one of a number of deputy chairmen under VTB boss Andrei Kostin, adding its hand was likely to be forced by European regulators.
“I doubt that the ECB will accept us having critical functions being performed outside the EU,” he said. “And building two central functions is expensive.”
“We are looking at several factors to decide where we switch our European headquarters to, including regulation, fiscal policy and the talent pool. Frankfurt, Paris and Vienna are all being considered,” he said, adding that London would “remain an important presence for us, just not our European hub”.
VTB is the second-biggest biggest Russian bank by assets and is 61 per cent state-owned. It has been subjected to sanctions by the US and EU since Russia fomented a separatist war in eastern Ukraine in 2014, barring it from raising capital with a maturity over 30 days in western markets.
But Mr Moos said this had only boosted its reserves of foreign currencies, while reducing demand among Russian companies for borrowing dollars and euros.
“One of the unintended consequences of the sanctions has been a significant de-dollarisation in Russia, with much less borrowing of dollars by large corporates,” he said.
“They have also moved their foreign currency away from foreign banks to VTB and Sberbank, so our foreign exchange reserves have swollen by 20 per cent in the past year. We now have $6bn-$8bn of excess cash that we can’t invest, so we’re converting it to roubles, which we don’t do very often.”
The sanctions have prompted VTB to scale back in Europe and the US, instead placing more emphasis on bulking up its Asian presence. “We are moving eastward,” he said. “We are expanding in India, China and Vietnam it is full-speed ahead with hiring there.”
The UK has been one of the strongest advocates of sanctions against Russia in the EU, which may take a softer line with Moscow after Brexit.