Freeze of Raiffeisen's Russian arm locks in Austrian lender

By John O'Donnell and Alexandra Schwarz-Goerlich

VIENNA/FRANKFURT (Reuters) - A Russian court's freezing of Raiffeisen Bank International's shares in a local arm has blocked the biggest Western bank in Russia from leaving, pushing the Austrian-based lender's stock down as much as 7% on Friday.

The move could further frustrate Western attempts to get RBI to sever ties with Moscow and isolate Russia amid faltering international resolve to challenge it over its invasion of Ukraine.

RBI had vowed to spin off its Russian business, which provides a payment lifeline to hundreds of companies there, after coming under pressure from international regulators. But more than two years into the war between Russia and Ukraine, little has changed.

Russia's decision on Thursday is the biggest such freeze involving a Western bank in the country.

A spokesperson for RBI said that the move ruled out a sale of the bank, although they said it would have no impact on the Russian bank's operations or on the efforts demanded by the European Central Bank to reduce them.

RBI's share price pared losses later in the day to trade around 5%, and valued the bank at 5.9 billion euros ($6.6 billion). The stock is about 40% below where it traded before Russia invaded Ukraine.

RBI is a critical financial lifeline for millions of Russian customers who want to send euros or dollars abroad, although it has recently curtailed some of those services.

Western regulators, including the U.S. Treasury and the ECB want this to change, with the ECB demanding the bank pare back its Russia business.

"We can still appoint management and give instructions to the Russians but we cannot sell the bank," the bank said in a statement.

RBI will attempt to reverse the court decision, it said.

MONEY SPINNER FOR RBI

Although Italy's UniCredit also has a business in Russia and is also under pressure to leave, RBI is far larger and has become a test of Western resolve to end ties with Russia.

Russian authorities had made it clear to RBI, which has around 2,600 corporate customers, 4 million local account holders and 10,000 staff, that they wish it to stay because it enables international payments, one source has told Reuters.

With sprawling industrial holdings, Raiffeisen is a financial linchpin for Austria and much of eastern Europe.

Russia has become an even bigger money spinner for the bank since the Ukraine war started in 2022. Russia accounted for about half of the group's profits in the first three months of this year as fees on payments abroad spiked.

The freeze comes months after Raiffeisen ditched a deal it hoped would unlock its multi-billion-euro Russian assets.

Under the plan, it intended to buy a frozen stake in construction group Strabag linked to Oleg Deripaska for 1.5 billion euros ($1.6 billion).

Pressure from Washington prompted Raiffeisen to scrap it. Although Deripaska denies any current link to Strabag, U.S. officials believed he stood to gain.

The freeze is related to one of the companies, Rasperia, involved in that deal which launched legal action against Strabag in Russia.

The U.S. Treasury in May said a Russian company, Iliadis, was set up to acquire Rasperia, which held Deripaska's frozen shares.

($1 = 0.9002 euros)

(Reporting By John O'Donnell and Alexandra Schwarz-Goerlich in Vienna; Editing by Emelia Sithole-Matarise)