Record year for Euroclear as sanction-hit Russian cashpile balloons

Europe's unprecedented moves to sever financial ties with Moscow following Russia's invasion of Ukraine helped Euroclear post a record year on Wednesday, but also left the securities settlement house facing lawsuits from disgruntled clients.

The European Union ordered Belgium-based Euroclear, a core part of the global financial system's critical plumbing, to cut ties with Russian customers in February last year.

That led to a loss of income for Euroclear that was more than offset by interest on Russian cash from blocked coupon payments on bonds and redemptions, building up on its balance sheet at a time of rising interest rates.

Due to Western sanctions, Euroclear's balance sheet rose by 99 billion euros ($106.37 billion) to 124 billion euros in 2022, with interest on the Russian cash alone totalling 821 million euros.

"Future earnings linked to the sanctions will continue to depend on the prevailing interest rate environment and the evolution of the sanctions," Euroclear said in a statement.

"The Board expects interest income to continue to grow as blocked payments and redemptions continue to accumulate, albeit at a slower pace during 2023."

It said various counterparties from Russia have turned to the courts in Russia and the European Union to challenge Euroclear in a bid to recover frozen payments.

In case these lawsuits have any material impact, the company said it had decided to separate the sanction-related earnings from the underlying financial results when assessing the company’s performance and resources.

The unexpected profit from sanctions will be managed prudently and not be distributed to shareholders "until the situation becomes clearer", Euroclear said.

Euroclear is owned by shareholders such as JP Morgan, Societe Generale, HSBC, Morgan Stanley, Sumitomo, London Stock Exchange Group and Euronext, with the top 20 owning 80% of the company.

Settlement refers to the final leg of a stock or bond trade, along with the safekeeping of customer assets, which totalled 35.6 trillion euros in 2022.

Total operating income grew by 21% to 1.95 billion euros in 2022, when earnings per share rose 30% to 191.7 euros, with a proposed dividend of 115.5 euros per share, up 31%.

Excluding the impact of the Russian sanctions, adjusted net profit rose by 32% to 603 million euros as the company diversifies through acquisitions into new areas like funds distribution.

($1 = 0.9308 euros)