Russian President Vladimir Putin approved the purchase of 100% shares of HSBC by Expobank
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A year and a half after information appeared about the possible purchase by Russian Expobank of a subsidiary of HSBC in the country, the deal was approved by Russian President Vladimir Putin. However, since the start of negotiations, Expobank itself has come under strict US sanctions, and now questions may arise from the selling party. Formally, transactions with the Russian bank are allowed until March 21, but lawyers admit that HSBC may consider the risks too high.
The President of the Russian Federation signed an order that gives Expobank the right to buy 100% of the shares of HSBC Bank owned by the Dutch HSBC Europe BV That HSBC signed an agreement to sell 100% of the Russian HSBC Bank to Expobank , it became known in July 2022. However, at that time the Bank of Russia did not receive an application for the transaction. The Central Bank did not answer whether it exists now. Kommersant sent a request to HSBC, but Expobank declined to comment. This is the second permission from the President of the Russian Federation for transactions with banks this year; in February, a similar one was issued in relation to Yandex Bank.
Expobank ranks 43rd in the Interfax rating, while the subsidiary of HSBC is 118th. Net profit for 2023 according to RAS amounted to 15.3 billion rubles. and 271 million rubles. respectively. HSBC Bank provides services in the areas of “corporate banking, investment banking and financial markets,” according to its website.
Expobank was included in the US SDN list in December 2023. Partner at the NSP law office, Alexander Nektorov, believes that the deal to sell the Russian subsidiary “most likely does not create sanctions risks for HSBC under US law due to the fact that OFAC general license No. 85 allows any operations aimed at terminating legal relations with Expobank, up to March 21, 2024.”
Delcredere Bar Association lawyer Artem Kasumyan draws attention to the international status of the counterparty: HSBC is basically an English bank, although it has a subsidiary in the United States. According to the lawyer, “in order to avoid the application of American sanctions legislation, the transaction is likely to be structured without the participation of American persons and with payment not in US dollars.”
Usually, even in the case of general licenses that provide certain exceptions within the framework of the sanctions regime, Western financial organizations “try to verify their applicability to their specific situation,” says Mr. Nektorov.
Therefore, Mr. Kasumyan adds, “it is possible that HSBC received some confirmation from OFAC that the transaction was acceptable.” “For example, such a deal may be justified for HSBC within the framework of US sanctions policy, which encourages divestment in Russia,” explains the lawyer.
For Expobank, the deal should turn out to be profitable, because foreign banks, according to established market practice, are now being purchased at a discount, experts say. At the beginning of 2024, the largest part of HSBC Bank’s assets is located on deposits with the Central Bank of the Russian Federation (17.9 billion rubles), another 10.1 billion rubles. placed with other credit institutions. The structure of liabilities is almost 10 billion rubles. consists of retained earnings, as well as over 12 billion rubles attracted from other banks.
A Kommersant source on the financial market admits that the deal could be completed during the first half of 2024. Its implementation could be complicated by UK and EU sanctions against Expobank, which do not yet exist.
However, lawyers still see risks. “Despite the permission of the President of the Russian Federation, HSBC may refuse further participation in the transaction if it considers that the sanctions risks are sufficiently significant,” says Mr. Nektorov. The permit does not create a legal obligation to sell, he emphasizes.
Partner of the law firm “Iontsev, Lyakhovsky and Partners” Igor Dubov draws attention to the fact that the permission of the President of the Russian Federation for transactions with banks does not eliminate the need to obtain approval from the Central Bank and the Federal Antimonopoly Service. At the same time, when making a decision in one favor or another, the Central Bank of the Russian Federation “carefully checks the financial situation of the buyer.”
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