VTB sanctions leave its city owner out
Russia’s second-largest lender has fallen behind on rent payments for its City of London offices, leaving its owner, Libya’s sovereign wealth fund, out of pocket and underscoring the deep and unpredictable consequences of Western sanctions on Russian businesses.
VTB Bank, which has an investment banking operation based opposite the Bank of England, has been banned from paying or receiving rent since it was hit with sanctions following the invasion of Ukraine by Russia.
The Russian lender is a tenant at 14 Cornhill, a Grade II listed office building in the Square Mile which was once the headquarters of Lloyds Bank.
The building has been owned by the Libyan Investment Authority since 2008, when the group paid £120m to buy the block from German fund manager IVG.
The LIA itself is subject to certain sanctions – asset freezes introduced under Muammer Gaddafi’s regime – according to the Treasury, which said it could not comment on specific properties when asked if those restrictions covered 14 Cornhills.
Sovereign wealth funds have long viewed the UK capital as a safe place to store cash and its commercial properties as a reliable source of income: last year the City of London approved plans for an office tower 38 floors financed by the Singaporean sovereign wealth fund, GIC and developer, British Land. Canary Wharf is owned by the Qatar Investment Authority, alongside Canadian fund Brookfield Property Partners.
But the sanctions have made properties with Russian tenants a precarious gamble.
The managing agent for 14 Cornhill, James Andrew International, applied for a license from the Office of Financial Sanctions Implementation, which is part of the Treasury, which would allow the LIA to continue to collect rent from VTB.
“[VTB] I can’t afford myself until we get that license because the banking system won’t allow money to flow from a Russian bank to a UK bank without a license,” said Jeremy Gray, chief executive by James Andrew International.
Gray was confident that a license could be obtained as early as this week, which would allow VTB and the tenants it sublets the space to, to pay despite the penalties.
A person familiar with the negotiations said talks were taking place between the LIA and VTB about terminating the lease and transferring the sub-letters to direct LIA tenants.
VTB is winding down its European operations after freezing its assets, launching global payment messaging system Swift and suspending its membership on the London Stock Exchange.
During VTB’s global expansion in the 2000s, the bank took out a 20-year five-storey lease at 14 Cornhill, although it has the option to break the lease in August 2024.
In a provocative gesture of financial expansion, the group flew a large Russian flag and another with its corporate logo over the Bank of England. It initially hired more than 500 bankers, but the number based at 14 Cornhill fell to 120 as staff were made redundant or moved to Frankfurt in response to Western retaliation for Russia’s 2014 annexation of Crimea and Brexit. .
The bank has since sublet three floors to Pension Corporation, the specialist British insurer, which declined to comment.
VTB and the LIA did not respond to requests for comment.
Another tenant is LGT Wealth Management, the private bank of the Liechtenstein royal family, which rents two floors of the building directly from LIA.