Euroclear has warned that a G7 plan to use Russia’s frozen assets as a backstop to issue debt for Ukraine would pose financial stability risks to Europe.
In an interview with the Financial Times, Lieve Mostrey, chief executive of the Brussels-based central securities depository, said the mooted plan would come “pretty close to an indirect seizing” of the assets and expose the company to legal claims.
Euroclear holds about €191bn belonging to the Russian central bank, the bulk of the €260bn in sovereign assets immobilised abroad in the wake of Moscow’s full-scale invasion of Ukraine in February 2022.
Mostrey warned against a proposal floated by Belgium as a compromise between a US-led push to seize the underlying assets and a more reluctant European stance. The compromise would foresee using the assets as collateral to raise debt and making Russia repay it at a later date or, if it fails to do so, seizing the assets then.
“Using assets that don’t belong to you as collateral is pretty close to an indirect seizing or a commitment to future seizing, which could have exactly the same effects on the markets as a direct seizing,” Mostrey said, adding that this could also expose Euroclear to legal claims over the assets.
“We don’t see how the central Russian bank would simply accept that has been seized and that Euroclear’s obligations towards them have stopped to exist,” she said.
“I trust that the prudent, rational will prevail,” Mostrey said. “When we come to a logic of seizing of assets . . . then you see the trust in the Euroclear system, the trust in the European capital markets, the trust in euro as a currency substantially affected.”
The US has been advocating for seizing the principal assets for Ukraine, but Germany, France and Italy have been opposed, noting that sovereign assets have immunity under international law. They and the European Central Bank have cautioned that the move could undermine the euro by suggesting that assets stowed in euro might not be safe.
“We have to be very attentive to the attractiveness of the euro and the European capital markets for international investors,” Mostrey said.
The chief executive was, however, more favourable to separate plans by the EU to use the profits generated by those assets to help Ukraine, deeming that move as less risky since Euroclear does not pay out interest income to clients and the profits “legally belong to Euroclear”.
Last year, Euroclear earned €4.4bn on reinvesting cash balances from matured securities, such as redemptions and coupon payments, that could not be paid out to Russian clients.
“We understand very well that these revenues only exist because of the fact that there are sanctions,” said Mostrey. “It’s a combination of big numbers and high interest rates that yields these unprecedented amounts.”
Mostrey said that depending on the evolution of interest rates, Euroclear could earn similar amounts in 2024 as immobilised securities continue to turn into cash, or even exceed that amount if rates are not cut at all.
The EU last month agreed to set aside billions in profits from the assets in order to support the reconstruction of Ukraine — estimated at nearly $500bn over the next decade.
“We would accept such a measure,” Mostrey said of plans to seize the profits. “It is . . . our feeling that with regards to these profits, the risk is a bit lower.”
Euroclear is already setting aside the profits, which in 2023 amounted to €3.25bn after tax, as a “special buffer relating to the Russian situation”, Mostrey said. The EU plans to skim off the profits would not affect the 2023 profits.
She added that Euroclear should have the possibility to renegotiate the skimmed-off amounts in case of unforeseen risks flagged by a regulator. “It is simply not possible today to make an affirmative statement that all potential future risks are covered.”
Euroclear is already facing between 50 and 100 lawsuits in Russian courts over the immobilised assets, with the number of cases likely to go up, according to Mostrey. The company has already lost some cases and while it has filed appeals, it is unlikely the outcome will change given Russia considers western sanctions illegal, she said.
“The buffers that we have are clearly strong enough to protect ourselves,” she added regarding the resulting costs.
