No banker in their right mind would argue for loans to join bonds and equities in the bucket of financing options that EU politicians have ruled out for sanctioned Russian institutions. Or at least they would not want to voice such sentiments publicly.
But when loans to Russian entities — sanctioned or otherwise — are all but off the table anyway through a culture of fear and uncertainty, then still having the legal right to provide those loans only creates its own problems. Bankers could have done with something clearer.
Russian borrowers need to raise a lot of financing and will look for any means to do so. Anyone who thinks that as yet unsanctioned companies are not going to press western banks for the money are kidding themselves (they could of course press their government, but that’s another matter).
And while it may be natural for shell-shocked bankers to give a “not now, maybe later” response to such requests, the onus must be on Russian borrowers more than ever to secure financing quickly before they too find themselves in the EU or US sin bin. What price, after all, the VTB bankers who failed to get a seemingly done deal over the line last month while they had a pass? That has left a $1.5bn-$2bn funding gap in the bank’s plans that could have been avoided with more haste — or more pressure.
With tensions between Russia and Ukraine likely to escalate further rather than ease off in the near term, it’s natural for western bankers to chant in unison that the market is closed. But how long that will wash as Russian borrowers grow more earnest remains to be seen.
Without the holy shield of an explicit, outright EU ban, how long will it be before banks one-by-one are tempted to buckle and break rank? Or if they don’t, what damage will be done to Russian borrower relationships (not to mention their own year-end books)? And who is going to mop up the business that western lenders forego? Chinese banks are not renowned as the quickest movers and may not have capacity, but some are certainly bullish about the opportunity.
Syndicated lending, by its nature, is a group activity. So of course there is some comfort and camaraderie to be had in banding together. It’s also difficult to fly solo anyway and it risks a hefty fine.
In that sense the EU not banning loans will (hopefully) make it easier for banks to decide among themselves, as tensions ease, when the time is right to start lending again. And maybe the odd, very select borrower will still be able to get a deal away in the meantime, if by consensus it is deemed not to break with the spirit of the sanctions.
But there are arbitrage opportunities here and going along with the herd will not carry the same weight as an excuse for not lending in a row with the Russians, or arouse the same sympathy, as not being able to lend because of an outright ban. Loans bankers wanting to do the right thing will just have to roll with the punches, thank the EU and dig deep for existential meaning.