Euroclear profit soars as payments from Russian sanctions pile up

Profits at Euroclear have more than doubled in the last year as the world’s largest settlement house gained an unexpected windfall from the western sanctions on Russia.

The Brussels-based group said on Friday its balance sheet had swelled by €88bn to €140bn at the end of March as the coupon and fund redemption payments the company normally moves to and from Russian bank accounts were frozen and locked in its accounts.

Rather than hold the money, Euroclear typically lends out long-term deposits as short term loans to banks. As interest rates rose rapidly to combat surging inflation, the combination meant Euroclear earned €971mn in interest in the first quarter. Interest on cash balances from Russia-sanctioned assets was €734mn, it said.

Unprecedented global sanctions on Russia, imposed when Moscow sent its troops into Ukraine in February last year, have snarled up global finance and cut off Russia from the financial payments pipelines that investors use every day to move money around the world.

The main international securities depositories, Euroclear and Clearstream — which hold €50tn of assets on behalf of investors — stopped accepting payments in roubles.

Russian president Vladimir Putin has retaliated with capital controls that banned Russian-based institutions from transferring foreign currency abroad.

However Euroclear is facing lawsuits from counterparties in Russia to force the company to hand over the payments. Euroclear, which is owned by its banking users, said it would not distribute “any profits related to the Russian sanctions until the situation becomes clearer”.

It added that the sanctions on Russian businesses and many high-profile business executives had resulted in a loss of activity and income. However it admitted that had been “more than offset” by the income from higher interest payments.

Stripping out the profits gained on sanctioned Russian accounts, Euroclear’s underlying first quarter net profit rose 95 per cent to €256mn as it also benefited from the market volatility related to the March banking crisis.

The loans in the last year have come as the European Central Bank lifted its policy rate to a record 3.5 per cent, with investors expecting further raises to come.

The bank added that it expects its interest income earned from frozen Russian assets to continue growing in 2023, but at a slower pace.

The uplift comes as the European Commission is assessing if assets frozen at Russia’s central bank can be legally redirected to support the reconstruction of Ukraine.