• Christian Hintermann, Partner |

The war in Ukraine is another blow to a global economy already suffering from COVID-19 and climate change, increasing inflation, disrupting supply chains, and heightening cybersecurity risks. In this thirt arcticle of our blog series, we summarized a few of the impacts on the global banking sector.

Global Economic Slowdown

In March 2022, the UN’s trade and development body (UNCTAD — UN Conference on Trade and Development) downgraded the 2022 global economic growth projection from 3.6 percent to 2.6 percent, due to the Ukraine war and recent changes in countries’ macroeconomic policies.

Inflationary pressures on food and energy

Higher energy and commodity prices due to the war and related sanctions has intensified inflation in many economies. Russia and Ukraine account for one-fifth of all global wheat production and 70 percent of sunflower oil exports — both critical inputs for agri-food businesses across the world, and wheat prices have already leapt in recent months. Following strong consumer demand and high GDP growth in 2021, energy prices were spiraling upwards with the war accelerating this trend.

Transport and trade

The Ukrainian conflict is exacerbating disruptions to global logistics and supply chains, with a particular impact on global maritime transportation. Conflict induced contractor uncertainty, security concerns and trade restrictions have added to uncertainties related to trade routes through Russia and Ukraine.

Russia is also a key supplier of various metals including copper, nickel, palladium and aluminum and shortages of these materials could impact supply chains and industrial production.

Heightened cyber risk

Ukraine is under intense cyber threat, including denial-of-service and malware attacks to disrupt its digital infrastructure. Similar risks face those countries/territories applying sanctions or offering public support for Ukraine. 

ESG rising up the agenda

Companies are under pressure from investors and the public to take a stance on the crisis in Ukraine. Many multinationals have unilaterally boycotted or divested activities in Russia, reflecting a broader shift towards putting purpose ahead of profit - however difficult the choice.

Risks and impact on the EU banking sector

Given the sanctions and reputational risks involved, some banks have already announced their exit from Russia. Such exits could ensue challenges including seizure of physical assets, sudden unemployment for the bank employees and potential lawsuits from clients. 

In March 2022, Goldman Sachs and JP Morgan announced the winding down of their Russian businesses. Similarly, in March 2022, Citigroup stated that it would broaden its planned withdrawal from the country, amidst the on-going conflict.

Similarly, Austria’s Raiffeisen Bank International is evaluating different scenarios and options for its operation in Russia. Société Générale ceased its banking and insurance activities in Russia in May 2022 by signing a sale and purchase agreement for its entire stake in Rosbank and the Group’s Russian insurance subsidiaries with Interros Capital (a private investment company in Russia and a previous shareholder of Rosbank).

Conclusion: Potential impact on M&A landscape

Overall M&A activity has suffered a blow in first half of 2022, as market uncertainty, led by Russia’s invasion of Ukraine, disrupted the deal making pace observed last year. 

Both corporate and private equity buyers have had their plans disrupted by rising costs of energy, disruptions to supply chains and higher inflation. The conflict has impacted deals in earlier stages, with acquirers pausing/reducing the pace of their pursuit, assessing the impact of inflation, and conducting additional checks on the target’s operations. Deal involving Russian entities have also suffered due the financial, reputational and legal risks involved. 

As companies halt strategic mergers, fundraisings, and public offerings, global investment banking revenues are set to note disruptions in 2022.

The uncertain nature of the conflict makes it harder to predict its future impact on the M&A landscape, even if in the last weeks different speculations have been made on cross border mergers in Europe.

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