Russia’s biggest lender Sberbank has shrugged off concerns about both Brexit and sanctions by committing £80mn ($104mn) in the second half of this year to its loss-making London investment bank, bne IntelliNews can reveal.

Annual filings made by the bank on September 28 with UK Companies House shows that £80mn was injected by the parent in a move, which doubles the capital of the London unit of Sberbank CIB.  

The investment is easily the largest by Sberbank into its UK business and follows an injection of £40mn made in February this year and smaller amounts worth £5.5mn and £3mn made by the parent last year.

"Unlike some other Russian corporates exiting Londongrad, Sberbank has not been freaked out by Brexit or sanctions and is seemingly staying put come what may," a Russia-focussed fund manger, who invests in the lender, told bne IntelliNews. 

Sberbank, which is led by President Vladimir Putin’s former Economy Minister German Gref, said “the additional capital will support an expansion of the equities and fixed income businesses as well as the introduction of derivatives and additional capital markets products.”

The lender also said the funds were made to support the UK unit’s capital base and to ensure that sufficient capital buffers were maintained, suggesting the Russian banking behemoth is committed to remaining in the UK beyond the country’s departure from the EU.

The additional capital hasn’t yet helped to transform the fortunes of the embattled business, which is based on Fleet Street in London near the Old Bailey.

The latest filings show losses for the UK subsidiary expanded to $8.2mn last year from $6.8mn in 2016.

“Although the impact of existing sanctions and the ever-present potential for additional sanctions continues to influence clients’ decision-making, 2017 was an encouraging year, particularly for fixed income performance,” Sberbank CIB said in the September 28 filing.

Revenue from fixed income rose by 16% last year to £6.1bn but was partly offset by a 23% slide in revenue from trading in equities, which declined to £2.2bn.

That revenue from trading in fixed income instruments could be completely obliterated if the US Congress passes is so-called “sanctions bill from hell” after the US mid-term elections. The legislation, which is aimed at punishing the Kremlin for interfering in the US Presidential elections, would restrict investment in new Russian sovereign debt and the country’s vitally important energy sector.

Andrei Kostin, the boss at rival lender VTB, warned that Russians with bank accounts in dollars will only be able to make withdrawals in rubles if new sanctions take effect. VTB, which sold its US operation in September, may decamp entirely from London after cutting staff there to the bone.  

Sberbank has so far declined to outline any plans it may have for setting up a headquarters for its investment bank within the EU. However, the parent bank has been rapidly retreating from mainland Central, Eastern Europe and Turkey in a series of disposals.

Sberbank sold its Turkish unit Denizbank, for $3.5bn in May to Dubai banking group Emirates NBD. In Ukraine, the Russian bank has been blocked from selling its business by the regulator to a Belarus player.

Gref told state TV earlier this year that sanctions have the bank's life in Europe "extremely difficult." 

Kremlin-controlled lenders like Sberbank have been subjected to sanctions by the US and EU since Russia fomented a separatist war in eastern Ukraine in 2014, barring them from raising capital with a maturity of more than 30 days in western markets.

Sberbank, which controls about 46% of Russia’s deposits and a third of the nation’s loans, has had a torrid time in the UK over the past few years but intends to stay the course. The business was cut to the bone following a quadrupling of losses in 2014 and a record $5mn sexual discrimination award to Svetlana Lokhova, a former equity saleswoman.

Lokhova was thrust back into the spotlight after it emerged she had struck up a friendship with Michael Flynn, US President Donald Trump’s disgraced former national security adviser, in her new role as a Soviet intelligence historian.

Lokhova was taunted by her London colleagues with unfounded allegations of drug use and driven to a mental breakdown, an employment tribunal ruled. She later passed a drug test taken at her insistence, while the tribunal ruled that then UK boss Paolo Zaniboni had victimised her by failing to discipline the London-based bankers who bullied her.

The former saleswoman was eventually awarded £3.2mn after finding she had been a victim of harassment, victimisation and discrimination amounting to constructive dismissal. Zaniboni and David Longmuir, a banker who was also implicated in the case, have both since left the London business.

Sanctions do not prohibit clients from trading with Sberbank, but they do restrict investors from accessing debt and equity financing. To compound matters, many leading UK, European and US fund managers opted to sever trading lines entirely with Sberbank for fear of incurring the wrath of Wall Street regulators.

The number of employees at the London office, which is headed by chief executive Adam Jesney continues, to shrink. Headcount fell to 19 at the end of last year from 26 for the prior year, the latest filings shows. However, the filings did note that last year was the first full year of operation for the London branch of SIB Cyprus Ltd although there are no details of what that branch gets up to.

Gref has given mixed signals about his regard for investment banking. In 2016, he told Bloomberg News that investment banking is “not our strategy in the long term”, because it’s not growing as fast as the bank’s retail or corporate units. Gref has soured on investment banking since paying Armenian banker Ruben Vardanyan and his colleagues more than $1bn in 2011 for Troika Dialog. The business was later rebranded Sberbank CIB. 

Despite retrenching from Europe and problems dealing with sanction, Sberbank is raking in record profits thanks in part to its near-monopoly position in Russia.