European Bank Shares Begin Rebound As Slew Of Sanctions Readied

European bank shares started to rebound on Friday after steep falls a day earlier, as bankers grapple with the potential impact of a slew of sanctions following Russia's invasion of Ukraine.

Shares wavered as missiles pounded the Ukrainian capital and its President Volodymyr Zelenskiy pleaded with the international community to do more, saying sanctions announced so far were not enough.

After early losses, leading European banks later edged up, with a European banking sector index 3.7% higher by mid-afternoon, only partly making up for Thursday's 8% fall.

Details of the next round of European sanctions were still a work in progress but the European Union is expected to freeze Russian assets in the bloc and halt its banks' access to European financial markets as part of what EU foreign policy chief Josep Borrell described as "the harshest package of sanctions we have ever implemented".

There is agreement to freeze the European assets of Russian President Vladimir Putin and Foreign Minister Sergey Lavrov, an official said.

"This package includes financial sanctions, targeting 70% of the Russian banking market and key state-owned companies, including in defence," EU Commission chief Ursula von der Leyen said on Twitter.

Behind the scenes, bankers said they and their lawyers were scrambling to determine the impact of sanctions.

"To be effective, regulations need to be clear and self-explanatory," the European Banking Federation said, adding that it stood ready to work with policymakers to make that happen.

Germany's financial regulator, BaFin, said that it was in close contact with the banks it oversees regarding risks of an escalation in Ukraine. It warned that it expected full compliance with sanctions.

In a sign that sanctions were beginning to bite, the London Stock Exchange on Friday suspended VTB Capital's membership. The company is owned by one of Russia's biggest banks and can no longer trade on the LSE.

Elsewhere, compliance officials at insurance brokers are instructing staff to cease the use of currently approved Russian insurers and find alternatives, said Ben Sheppard, senior research analyst at insurance investment adviser Argenta Private Capital.

In a report on Friday, JP Morgan analysts said sanctions would have a limited impact on banks directly and that the bigger problem was the impact on the economy.

"The key risk for European banks relates to potential GDP downgrades due to higher commodity related prices and hence potential delays in interest rate hike expectations," the report said.

The prospect of higher interest rates had brightened the earnings outlook for banks after years of ultra-low and negative rates ate away at their profit margins.

Meanwhile, banks were carrying out emergency measures. Germany's Solarisbank said that it had evacuated its tech hub in Kyiv, which it opened last year with dozens of employees.

"It is sad to think that just one week ago, I was in Kyiv, working and developing business. Now we have to rebuild our plans and to adapt," the bank's Ukraine chief, Dumitru Condrea, posted on LinkedIn.

On Thursday, banks with the biggest exposure to Russia fell the most.

That included Austria's Raiffeisen Bank International, which lost 23%, regaining 8.5% on Friday. Societe Generale, which lost 12% on Thursday, and was up 3% on Friday.

Some investors had already cut exposure to Russia going into the crisis.

"We had our own screening view of what businesses would most likely be impacted through strong sanctions and that had been an area where we've been seeking to reduce our exposure," Andrew Formica, the chief executive of Jupiter Fund Management, said.

For European banks, the greatest concern has been that governments would cut Russia out of the SWIFT international payment network, but so far that hasn't happened.

Bankers have argued cutting Russia off from the international payments network could seriously hurt its economy and everyday citizens, and would create enormous complexity and compliance risks for the global banking industry.

While Britain is pushing to cut Russia out of SWIFT, French Finance Minister Bruno Le Maire said on Friday that option would only be used as a last resort.