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Russia. Deutsche Bank has informed investors that their Russian shares have gone missing

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Deutsche Bank has told customers it cannot guarantee full access to the Russian shares they own. At the same time, he pointed out that recovering lost investments in companies from Russia is a big challenge for global investors, Reuters reported.

Germany’s largest bank announced on June 9 that it had discovered a shortage of shares that protect depositary receipts (DRs) issued by the bank against the invasion of Ukraine. These shares were held in Russia by another bank – explained the Reuters Agency.

She added that according to Deutsche Bank (DB), the shortage of investment papers is the result of Moscow’s decision to allow investors to convert some DRs into shares of local companies. The conversion was carried out without the “involvement or supervision” of the German bank, the agency explained.

Deutsche Bank and Russian stocks

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It is the first major bank to formally inform depository receipt holders that they may not receive ownership of exactly all the shares they are entitled to, two sources advising investors with Russian DRs told Reuters.

Depository receipts are certificates issued by a bank – they represent the shares of a foreign company and are traded on the local stock exchange. The exchange of DR for shares in a Russian company is the first step towards getting the money back, explained Reuters.

The agency indicated that it was about shares of the domestic airline Aeroflot, the construction company LSR Group, the mining and steel company Mechel and Novolipetsk Steel. Mechel declined to comment, while the other companies did not immediately respond to a Reuters request for comment.

Russian “exit tax” for foreign investors

Western sanctions and Russian countermeasures have stripped assets from citizens and businesses on both sides. Moscow is also demanding 10 percent. contribution to the federal budget, which Washington describes as the “exit tax.” The Kremlin also took temporary control of the assets, taking over the Russian subsidiaries of two European energy companies in April. The strategy aims to reduce foreign influence on companies that are critical of Russia’s economic and political interests, Reuters reported.

A significant number of investors, from small hedge funds to large global asset managers, still hold depository receipts, investor sources said. Most investors have reduced the value of Russian assets to zero, but some still hope to get them back in the future, Reuters reported.

As Irina Tsukerman, president of Scarab Rising, a geopolitical risk consultancy, pointed out, Reuters reports should not come as a surprise.

“Literally everything in Russia was at risk: be it DR, stocks, real estate or any other form of financial asset,” she said.

The Central Bank of Russia did not immediately comment on the matter. The Russian National Settlement Depository said that the share conversion was carried out in accordance with Russian legislation and is not the institution responsible for implementing this mechanism, Reuters reported.

He added that lawyers and other advisers described the conversion process as “complete chaos”.

Deutsche Bank is now allowing investors to convert depositary receipts into shares as part of plans to exit all operations in Russia, one source said. It added that, according to the bank, customers could be better off if they at least partly switched DRs, Reuters reported.

JPMorgan Chase, Citigroup and BNY Mellon are custodian banks for most of Russia’s other depository receipt schemes, the agency said, citing Clearstream. All three banks declined to comment to Reuters on whether they had any shortcomings.

High discount on sold Russian assets

Deutsche Bank said it would try to return the shares to their rightful owners. However, it warned that the net proceeds from the sale of the shares, which it would be able to return to investors, would likely be “considerably lower” than the current market price.

According to the bank, the Russian Governmental Commission for the Control of Foreign Investments expects such shares to be sold “at a discount of at least 50% of their market value,” Reuters reported.

Main photo source: Mikhail Gerasimov/Shutterstock

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