Financial Planning

Ukraine Invasion – Impacts for Financial Services

Allianz Global Corporate & Specialty (AGCS)

On February 24th, 2022 Russian armed forces attacked Ukraine. The ongoing invasion is first and foremost a human tragedy and Allianz has been clear in its opposition to this unprovoked attack.  As a secondary topic after the humanitarian concerns, the invasion poses a complex threat to the operations of financial services companies and has some enormous consequences for the financial markets in the short-term. Allianz Global Corporate & Specialty (AGCS) experts highlight some of the initial impacts they see for the financial services space.

Immediately after the invasion we saw a panicked reaction on the capital markets, explains David Van den Berghe, Global Head of Financial Institutions, AGCS. In particular European banking stocks were negatively impacted, with banks from Italy and France most exposed to Russia (see graphic), together accounting for more than 40% of the total exposure of foreign banks in Russia at $25.3bn and $25.2bn respectively. However, these numbers only account for very low single-digit percentages of their total foreign claims. Banks with large Eastern European activities also saw stock prices declining materially. 

Stocks of Russian banks saw massive declines and interest rates on (expected to default) Russian and Ukrainian sovereign debt, as well as the cost for credit default swaps, went through the roof. Europe’s Single Resolution Board took action on Russia’s Sberbank subsidiaries in Croatia and Slovenia to avoid failure. (1). 

“Equity and bond markets have clearly seen significant volatility and the impact of these geopolitical tensions demonstrates how uncertain the current (not even post-Covid) environment is in which financial services companies (and financial lines underwriters) operate today,” says Van den Berghe.

Furthermore, we see the macroeconomic impact and increasingly higher inflation expectations fueled by elevated commodity prices. In Europe the risk of stagflation has increased and markets are closely watching the next steps central banks around the world are taking. In any case, increasing inflation, together with low economic growth, may lead to lower profit generation for banks and negatively impact the results derived from retail operations.

When it comes to US-headquartered financial institutions, some asset managers and banks do have physical assets exposure to Russia and Ukraine. However, the evidence seems to suggest that such direct assets exposure (whether these are leased airplanes, real estate, equity investments, Russian and Ukrainian debt/bond investments denominated in USD/Russian Roubles/Ukrainian Hryvnia, etc.) and other related exposure is in low single digit percentage points, if that. 

“Underwriters expect US-based financial institutions to conduct full write-downs of their investments in Russia and Ukraine during fiscal 2022 and possibly later as the ultimate outcome of the conflict remains uncertain,” says Anton Lavrenko, Regional Head of Financial Institutions North America, at AGCS.“It is also likely that the US assets in Russia will be nationalized in response to the US-imposed sanctions, ruling out any possibilities of future recoveries.” 

Also, worth noting, is that a number of US asset managers have highlighted that sanctioned Russian nationals are limited partners in their funds and that they are working to buy back their interests in these private funds in order to cease the affiliation with these limited partners. 

At the same time, certain US hedge funds are buying up Russian and Ukrainian bonds cents on the dollar, perhaps betting on an early resolution of the conflict. The Ukrainian bonds are currently trading at higher prices given the pledged financial support of Ukraine by the US and the European Union. “While doing so is somewhat of a common practice by hedge funds, aiming to profit from the current unprecedented situation in Eastern Europe may be viewed as an environmental, social and governance (ESG) issue by the investment community and the regulators,” says Lavrenko.

Cyber and ESG issues

Alongside the human toll, the invasion of the Ukraine provides a salient reminder of the omnipresent danger of state-sponsored cyber-attacks that aim to disrupt and disable IT systems. Banks and financial institutions are on alert for an escalation in hacking attempts and Russian reprisal cyber-attacks after the imposing of sanctions by Western nations, resulting in a number of the country’s lenders being kicked off the global payments messaging system Swift (2).  

This comes at a time when risk managers have never been more aware of the hazards posed by cyber criminals. Studies (3) regularly show that the sector is the industry most targeted, particularly in the form of ransomware attacks and advanced persistent threats (APTs), which are often linked to nation state-backed groups. In addition, recent high-profile cyber-attacks (such as Log4JKaseya, and  SolarWinds) (4) have shown a worrying trend for incidents where hackers target technology or software supply chains.  AGCS analysis of more than 7,500 insurance claims involving financial services companies over the past five years (worth $1bn+) show that cyber incidents is already the top cause of loss. IT outages, service disruptions or cyber-attacks can result in significant BI costs and greater operating expenses from a variety of causes, such as customer redress, consultancy costs, loss of income and regulatory fines. Last, but not least, brand reputation and, ultimately, a company’s stock price can also be negatively impacted, while management can also be held responsible for the level of preparedness.

It is unsurprising then that cyber incidents was ranked as the top risk for the financial services sector by 51% of the 872 respondents who participated in the Allianz Risk Barometer 2022 – the highest ever total. For companies, and their senior management, this ultimately requires them to maintain an active role in steering the information and communications technology (ICT) risk management framework, including assigning clear roles and responsibilities for all functions and appropriate allocation of investments and trainings. Companies need to operationalize their response to regulation and privacy rights and not just look at cyber security.

At the same time, the broader ESG impact is being felt by asset managers assessing the impact these developments have on the sustainability of their investments post widespread sanctions, on a country that already scored relatively low in terms of governance and social matters. No doubt some asset managers will consider to divest Russian assets based on ESG considerations. Companies’ boards from their side are re-evaluating presence and activities in the country due to concern over reputational damage. 

“AGCS regularly engages in open dialogues with the banking, insurance and asset management segments to discuss trends and challenges in order to contribute to a better management of risks in a complex environment that is constantly evolving,” says Paul Schiavone, Global Industry Solutions Director for Financial Services at AGCS. “It is at such tumultuous times in the world that strong partnerships are essential, whether country to country or company to company.  At Allianz we strive to be more than just an insurance leader and stand firmly with all people whose lives have been affected by these events.” 

For more information on Allianz’s humanitarian response to the Ukraine invasion


(1) Sberbank Europe AG: Croatian and Slovenian subsidiaries resume operations after being sold while no resolution action is required for Austrian parent company | Single Resolution Board (

(2) Banks on alert for Russian reprisal cyber attacks on Swift | Financial Times 

(3) Trellix ATR Threats Report | January 2022

(4) Hackers launch more than 1.2m attacks through Log4J flaw | Financial Times (

Kaseya Says It Didn’t Pay a Ransom To Hackers – Bloomberg

Lessons Learned From The SolarWinds Cyberattack, And The Future For The New York Department Of Financial Services’ Cybersecurity Regulation – Finance and Banking – United States (

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