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Concerns are raised by US authorities regarding Raiffeisen's intentions to spin off its Russian unit

In response to growing pressure to sever its links with Moscow, Raiffeisen Bank International (RBI) of Austria is ramping up efforts to give over its money spinning Russian business to shareholders, according to three people familiar with the situation.

Concerns are raised by US authorities regarding Raiffeisen's intentions to spin off its Russian unit

The spin-off is intended to protect Raiffeisen from the negative reputational effects of the war in Ukraine while preserving Vienna's banking links with Russia.

However, U.S. authorities have voiced reservations about how the new organization will be monitored for money laundering.

The ECB is pressuring Raiffeisen to wind down its Russia business, while the US sanctions agency opened an investigation into the bank in January.

For Austria, which had positioned itself as a link between the east and the west, the U.S. investigation in particular may prove dangerous since it turned Vienna into a hub for Russian capital.

After months of unsuccessfully trying to find a buyer to settle a dispute over its Russian business in order to avoid having to completely unwind it, Austria's second-largest bank is now commencing preparations for the spin-off.

The last-ditch effort, however, faces challenges, not the least of which are from international regulators, the sources told Reuters.

As Moscow becomes more and more isolated over its invasion of Ukraine, Raiffeisen has emerged as the most significant Western bank in Russia, providing a payment lifeline to Russians with few other options.

An official statement from Raiffeisen stated that the company would "continue to progress potential transactions which would result in the sale or spin-off of Raiffeisenbank Russia."

Despite strong backing from Austrian authorities, a spin-off still has to win over Washington, which is looking into RBI's ties to Russia, and the European Central Bank (ECB).

If the spin-off is successful, RBI's owners, which are primarily Austrian community banks, might become shareholders in the new, Vienna-listed company, receiving one share for each share currently held.

It is still unclear whether the organization would actually be independent of RBI, which would determine whether Austria or the ECB should be in charge of overseeing it.

One individual claimed that a spin-off was preferable to a sale, while another who was familiar with ECB thinking claimed that whether the central bank would supervise the spun-off bank depended on how independent it was from RBI.

The insider also said that it might be placed under the ECB's supervision as part of RBI if there are significant overlaps in employees or finance.

The ECB chose not to respond.

A third individual claimed that a spin-off was more likely because Western sanctions had scared any possible buyers away.

A fourth individual claimed that a spin-off would let cooperative Austrian banks that were worried about their ties to Russia sell out.

The strategy is to separate RBI from Russia, but it won't be a simple process. While RBI acknowledged that it had scaled back some of its efforts in Russia, it insisted that it still needed to maintain such activities to service its 9,000 employees and customers.

Following the revelation that Raiffeisen was one of the banks forced to participate in a Russian scheme to offer loan payment holidays to troops fighting in Ukraine, Raiffeisen is facing criticism.

Alexander Schallenberg of Austria defended the bank once more on Monday, according to an Austrian official.

Schallenberg advised his fellow foreign ministers not to single out Raiffeisen because it was comparable to the majority of Western corporations that were still operating in Russia.

In October of last year, Raiffeisen reported lending more than 600 million euros to clients, primarily in Russia and Belarus who have now been subject to sanctions. Since then, the amount has decreased. For collaborating with Russia, Raiffeisen was listed as a supporter of war by a sanctions tracking effort supported by Ukraine.


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