While Credit Suisse (and, by extension, its clients) face brutal margin calls on their Russian assets, Deutsche Bank is struggling with a different, but equally vexing, issue involving it Russia exposure: the bank is bracing for the loss of more than 25% of its investment bank IT specialists as sanctions against Moscow threaten to cut off the bank’s key tech centers in Moscow and St. Petersburg.
According to the FT, the German lender employs some 1,500 people in its Russian tech centers. These employees are responsible for developing and maintaining the software the bank uses for its global trading business, as well as software used by its may corporate banking arm. Since the start of the conflict in Ukraine, the German banking giant has been conducting “stress testing” and “disaster recovery” exercises to simulate the impact should it no longer be able to operate or pay its Russian staff.
The bank has already frozen hiring of IT staff in Russia, and is already looking into moving more of its IT capabilities to other countries, according to the FT.
“All options are currently on the table,” one senior DB executive said.
It has also reportedly told German regulators that there was “no immediate systemic risk” to its IT infrastructure, something the bank reportedly confirmed via a three day stress test.
Fortunately for DB, the hardware it uses to store data is all within the EU. Still, losing such a massive chunk of its IT staff would likely have serious repercussions, rendering the bank’s order book effectively inoperable.
“No quotes can make it out to the market, no negotiations can make it back from the market without passing through this software,” they said. “Trading is complicated and requires real-time support every day…without co-operation from the Russian teams things could start to go wrong almost immediately.”
Other executives within the bank (speaking anonymously) told the FT that building up such a heavy reliance on Russian IT talent was a huge mistake. One even described the situation as a “big mess” for Deutsche Bank, which is in the middle of a mostly successfu turnaround campaign led by CEO Christian Sewing.
Still, things could be worse.
Another senior manager called the bank’s heavy dependency on Russian IT expertise “a big mess”. Deutsche told the FT that “Russia is just one of multiple tech centres that we have around the world” and that it was “confident that the day-to-day running of our trading business will not be affected” by the war. “We have no code and no data housed in the Russia tech centre,” the bank added.
Let’s not forget, DB has a checkered past in Russia. Who can forget the infamous “mirror trading” scandal that led to hundreds of millions of euros in fines by EU regulators. The trades allegedly helped Russian oligarchs and organized criminals launder assets worht $10 billion.