*

UniCredit is seeking to have ECB demands annulled

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Filed an appeal in June, citing potential breach of

Russian laws

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Court tussle comes as UniCredit seeks to raise Commerzbank

stake

(Updates Oct. 16 story with details on UniCredit approaching

Mubadala Investment and comments from a lawyer from paragraph

13)

By Stefania Spezzati

LONDON, Oct 17 (Reuters) - UniCredit is still

awaiting a court decision over whether it must immediately

reduce its Russia business to comply with a European Central

Bank order, months after filing an objection, people familiar

with the situation told Reuters.

The near four-month wait for a decision increases pressure

on the lender to show it is complying with the ECB's requests,

whose deadlines have already passed.

The ECB, the lender's chief supervisor, instructed UniCredit

at the end of April to scale down its business in Russia

including imposing a ban on new deposits and restrictions on

handling payments.

In June, the Milan-based bank asked the European Union

General Court to annul the demands, which Chief Executive

Officer Andrea Orcel has said could breach Russian laws.

UniCredit has also sought to have the measure suspended

while the court proceeding is pending, and in July said that a

decision on a suspension was expected "in the coming months".

Representatives for UniCredit, ECB and the European court

declined to comment for this article.

UniCredit has said it "will continue to act on its

commitment to significantly reduce its presence in Russia" and

in July reiterated its 2025 targets to scale down its business

there.

According to a summary of the court case which has not been

previously reported, UniCredit asked the judge to annul all of

the ECB's demands or, alternatively, the orders regarding loans,

deposits and payments.

The ECB prohibited UniCredit from granting new loans or

rolling over existing loans and imposed a ban on taking new term

deposits from June 1, according to the court filings.

UniCredit is also contesting the ECB request to impose

restrictions on payments with Russian clients in certain foreign

currencies as of Sept. 1, with the exception of "whitelisted"

clients.

Reuters could not establish which white list the ECB is

referring to and whether UniCredit has complied with the ECB

requests.

UniCredit said in a presentation to investors at the end of

July that the bank aimed to reduce cross-border payments to

below 8.5 billion euros ($9.3 billion) and local deposits under

2 billion by 2025.

The Italian lender had approached Abu Dhabi's Mubadala

Investment over a year ago to explore a sale of its Russian

business, according to a person with knowledge of the matter,

but the $302 billion fund didn't pursue it.

A spokesperson for UniCredit did not immediately comment.

Bloomberg News earlier reported UniCredit's approach to

Mubadala.

"UniCredit is in a difficult position," said Laura Brank,

partner at law firm Dechert, who has been advising Western firms

including banks on the sale of their Russian subsidiaries.

"It's a very delicate balance, the idea of slowly winding

down the business is probably the easiest thing to do right now,

as opposed to just exit."

RUSSIA TIES

The legal battle with the regulator comes as UniCredit is

seeking the ECB's approval to increase its stake in Germany's

Commerzbank.

While the ECB has talked favourably about bank mergers in

Europe, the Italian bank is facing hurdles in Germany, Reuters

reported.

The ECB assesses purchases of bank stakes based on a handful

of criteria such as the financial strength of the buyer and the

reputation of the proposed acquirer, including court

proceedings.

The regulator will also scrutinize whether the purchase

increases risk of money laundering and financing terrorism, as

expected under the ECB's guidelines.

UniCredit's ties to Russia date back to International Moscow

Bank, the first Russian lender to raise funds from foreign

banking institutions.

Following changes in ownership, it was renamed AO UniCredit

Bank and in 2015 was included in the list of systemically

important banks by the Bank of Russia.

When Russia invaded Ukraine in 2022, UniCredit remained in

Russia, being one of two European banks - along with Austria's

Raiffeisen - to maintain large operations in the country.

($1 = 0.9190 euros)