Using Russian assets to help Ukraine: Euroclear warns against G7 bailout option - FT

Euroclear has warned that the G7 plan to use Russia's frozen assets as a safeguard for Ukraine's debt issuance will pose risks to Europe's financial stability, the Financial Times reports , UNN writes .

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In an interview with the Financial Times, Liv Mostry, executive director of the central securities depository in Brussels , said that the plan under discussion would be "quite close to an indirect seizure" of assets and would expose the company to legal claims.

For example, Mostry warned against a proposal put forward by Belgium as a compromise between the US desire to confiscate the underlying assets and the more reluctant position of Europe. The compromise was to use the assets as collateral to raise debt and force Russia to repay it later or, if it does not, to confiscate the assets, the publication points out.

"Using assets that you don't own as collateral is pretty close to an indirect seizure or a commitment to a future seizure, which can have the same effects on markets as a direct seizure," Mostry said, adding that it could also expose Euroclear to legal action over the assets.

"We don't see how the central Russian bank will simply accept that it has been arrested and that Euroclear's obligations to them have ceased to exist," she said.

"I believe that sanity and rationality will prevail," Mostry said. - "When we get to the logic of asset seizures... then you see that confidence in the Euroclear system, confidence in European capital markets, confidence in the euro as a currency has been significantly damaged.

"We have to be very attentive to the attractiveness of the euro and European capital markets for international investors," Mostry said.

At the same time, the CEO was more favorable to some EU plans to use the profits earned from these assets to help Ukraine, considering this step less risky, as Euroclear does not pay interest income to clients, and the profits "legitimately belong to Euroclear.

"We would agree to such a measure," Mostry said of the plans to confiscate profits. - "This is... we believe that the risk is a little bit lower for this profit.

Euroclear is already setting aside profits, which in 2023 amounted to €3.25 billion after tax, as a "special buffer related to the Russian situation," Mostry said. The EU's plans for profit shifting will not affect profits in 2023.

According to Mostry, Euroclear is already facing 50-100 lawsuits in Russian courts over the immobilized assets, and the number of cases is likely to grow. The company has already lost several cases, and although it has filed appeals, it is unlikely that the outcome will change because Russia considers Western sanctions to be illegal, she said.

"Certainly, the buffers we have are strong enough to protect ourselves," she added about the associated costs.

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Euroclear holds about €191 billion in assets belonging to the Russian central bank, most of which were immobilized abroad after Moscow's full-scale invasion of Ukraine in February 2012.

Last year, Euroclear earned 4.4 billion euros from reinvesting balances on maturing securities, such as redemptions and coupon payments, which could not be paid to Russian clients.

Depending on interest rate movements, Mostry said that Euroclear could earn similar amounts in 2024 as the immobilized securities continue to turn into cash, or even exceed that amount if rates do not fall at all.

Last month, the EU agreed to allocate billions in asset profits to support Ukraine's recovery, estimated at nearly $500 billion over the next decade.