Russian sanctions give Euroclear a capital headache
By Huw Jones
LONDON (Reuters) – Securities settlement house Euroclear said on Wednesday it has delayed paying a dividend as it may need to set aside more capital to cover a swelling balance sheet due to Russian sanctions.
Belgium-based Euroclear, owned by an array of big banks and exchanges like the London Stock Exchange and Euronext, ensures transactions are completed with cash exchanged for legal ownership of assets.
After Russia invaded Ukraine, the European Union barred Euroclear and rival Clearstream from serving Russian customers from Feb. 28 as Western powers severed ties with the country’s financial system.
Euroclear said on Wednesday that during the first quarter its balance sheet rose by 23 billion euros ($24.41 billion) year-on-year, or nearly 80%.
“We do not expect these sanctions to affect our financial
performance,” Euroclear said in a statement.
It was now looking at what this means for “potential regulatory capital requirements” as the cashpile is expected to keep growing as sanctions remain in place for months, if not years, and redemptions and coupon payments on Russian assets fall due but can’t be transferred to underlying parties.
Euroclear is looking to reinvest the money in money market funds or instruments such as short term commercial paper while the sanctions last, and risk from such investments typically need to be covered by capital in case they turn sour.
“In light of these circumstances, the board of Euroclear considers it to be prudent to wait until the second half of 2022 to formally decide on the dividend payment of 88.5 euros per share, equating to a total of 279 million euros as announced in its full-year results,” Euroclear said.
Euroclear said net profit in the first quarter rose by 11% to 134 million euros.
($1 = 0.9422 euros)
(Reporting by Huw Jones, Editing by Louise Heavens)