Euroclear earned over €3bn this year in profits from Russian assets that were frozen by EU sanctions at the securities depositories. This windfall is likely to increase pressure on European leaders for them to send the profits to Ukraine.
The Belgian-based group announced on Thursday that the income from trapped Russian assets increased in the first nine month of the year, compared to €347mn for the same period in 2020. This was a result of rising interest rates.
The rapid rise in the price of Russian assets is a source of discomfort for Euroclear. It has held Russian assets ever since Russian President Vladimir Putin ordered a full-scale invasion into Ukraine. However, due to the EU sanctions imposed on Moscow, it can’t move the funds into Russian banks. The Brussels-based group tracks and settles millions of securities transactions every day.
According to the Belgian Government, Euroclear is holding about €197bn in Russian assets. The Russian central bank accounts for €180bn, which is the largest share of the $300bn in central bank assets that were frozen by the western sanctions.
EU officials are pondering how to best use the proceeds of Russian assets stuck in Europe’s banking system. It’s considering using windfall profits Euroclear generates for Ukraine. EU leaders are expected to discuss these plans on Thursday.
In a draft statement, the leaders urge the European Commission to “accelerate work in order to submit proposals” on the use of “extraordinary revenue” derived from the frozen Russian assets.
The European Central Bank warned against taking the profits made by Euroclear because of potential risks for the euro. It said that this could cause other central banks to sell their euro-denominated assets and weaken the currency.
Officials from the EU say that they will only leverage assets if other central banks, governments and especially Washington support them in a global initiative.
In a press release, Euroclear said that it was focused on minimizing any legal, technical and operational risks for its own company and clients arising from the implementation of proposals by the European Commission.
Euroclear has frozen coupon payments and bond redemptions due to sanctions imposed by the US and Europe on Russian individuals and companies. The Belgian group is required to reinvest the money by regulation, and the rising interest rates provide a windfall of profits for the settlement house. Euroclear earned €347mn in the first nine-months of the last year from its Russian assets.
Euroclear’s net interest income grew to €3.8bn during the nine-month period ending September 2022, up from €522mn. The majority of the earnings was due to Russia sanctions.
The government of Belgium has already set aside for Ukraine the corporate tax that it receives from Euroclear on its unusual profits. Euroclear, according to their financial statement, has paid €740mn of taxes this year on earnings from Russian assets that were immobilised up until September.
Euroclear faces lawsuits by Russia, which are aimed at forcing it to pay the money. The company reported that it spent €34mn during the first nine-month period of the year to manage the Russian assets, legal costs and other implications. This is a significant increase from €12mn for the same period of last year.