International banks are talking publicly about how the business impact of Russia’s Ukraine invasion will be limited. In private, they’re debating the chances of nuclear conflict.

Goldman Sachs Group Inc. on Thursday put its clients on the phone with Alex Younger, ex-chief of Britain’s MI6 intelligence service and now an adviser to the Wall Street giant. It’s the first time in more than 30 years that the threat of nuclear confrontation is a real possibility, he said.

The episode is a jarring example of how the banking world is lurching into unknown territory with this conflict, in the same way as everyone else. For all the months of warnings and scenario planning, Russian tanks crossing the border has left bankers scrambling.

Firms such as Deutsche Bank AG and Commerzbank AG were eager to say on Thursday that their direct financial exposure to Russia was “well contained” and “manageable.” They have a point: Only France’s Societe Generale SA, Italy’s UniCredit SpA and Austria’s Raiffeisen Bank International AG have a substantial on-the-ground presence in Russia.

But the indirect costs of the new barrage of sanctions being unleashed by the White House, Brussels and 10 Downing Street are far harder to quantify. The EURO STOXX index of leading European bank shares has fallen about 11% this week as investors weigh up the risks to the broader economy and to the trading and private-wealth operations of the finance industry.

Banks have been locked in urgent mapping exercises to try to work out their trading exposure to counterparties backed by Russian money, according to a lawyer who works with many large financial institutions.

UBS Group AG moved quickly to limit its exposure to Russian assets on Thursday, triggering margin calls on some wealth clients that use Russian bonds as collateral.

Wall Street firms aren’t immune. Banks such as JPMorgan Chase & Co., Citigroup Inc. and Bank of New York Mellon Corp. move vast amounts of money around the world via their treasury services businesses, which makes them de facto enforcers of sanctions. Any time a transaction with a sanctioned entity comes through, the banks have to block and freeze.   

“Even if you don’t directly have a Russian sanctioned bank as a client you’re not entirely sure whether the transaction you’re handing will go through a Russian bank,” Eric Li, head of transaction banking at Coalition Greenwich, said. “The chain is very complex.”

Russia isn’t Iran, North Korea or Venezuela, with their limited links to global business. Banks have to dig through the myriad ways they can wind up with an exposure to an economy and finance system as big as Russia’s -- or to the wealthy bunch of oligarchs who’ve been enriched under Vladimir Putin’s rule.

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