Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

British Court Freezes Russian Banks' Assets

U.S. investment bank Lehman Brothers has frozen the British bank accounts of Inkombank and Uneximbank in an effort to retrieve $113 million in outstanding debt, becoming the first Western bank to attack Russian assets abroad.

"We have obtained injunctions from the High Court of London, and those injunctions freeze the assets held in the United Kingdom by Inkombank and Uneximbank," Lehman Brothers spokesman John Godfrey said Thursday. The bank obtained the injunction last Friday.

Inkombank and Uneximbank owe Lehman Brothers $87 million and $25.9 million respectively in forward contract debt, Godfrey said. Freezing the British assets boosts Lehman Brothers' leverage in negotiations and ensures some funds will be available should the bank win a settlement in court.

Lehman Brothers "hasn't ruled out further legal action," Godfrey said.

By some estimates, the crumbling Russian banking system owes foreign banks over $50 billion in so-called forward contract debts. But so far only Lehman Brothers has taken decisive legal action against its Russian debtors. Others are taking a more cautious stand.

In taking legal action, creditors walk a fine line between retrieving their money and quickening the pace of the debtor's collapse, said Brenda Horrigan, an attorney with law firm SHH in Paris, which represents companies and financial institutions owed money by Russian banks. If all creditors were to descend on a bank with lawsuit, that could spur bankruptcy and leave everyone out in the cold.

Still, security lawyers say many Western firms are considering action similar to Lehman Brothers' and eyeing Russian banks' fat foreign accounts, to which the banks have allegedly sent billions of dollars in recent weeks.

"We've heard of numerous creditors who are considering this kind of action," Horrigan said. "Other firms in town have also been approached about this kind of action."

"This is certainly an option Western banks are looking at," said Dan Matthews, an attorney with Baker & McKenzie in Moscow. "It becomes a matter of leverage: 'Unless you deal with us in an acceptable manner, this money will remain tied up for a long time.'"

Russian banks are supposedly protected from paying forward contracts by the 90-day debt moratorium Russia declared Aug. 17. Foreign investors in Russian debt typically signed forward contracts with Russian banks, which guaranteed them a certain dollar return on their ruble investment as protection against ruble devaluation.

But the ruble's 60 percent devaluation since Aug. 17 has made it that much more expensive for Russian banks to meet the contracts, leaving foreigners holding billions in debt.

"Because of the uncontrollable collapse of the ruble, the sum of these debts has proved unbearable to any one Russian bank, and to the Russian economy as a whole," Inkombank said in a statement Thursday.

Inkombank chided Lehman Brothers for its lawsuit, saying the Russian government was prepared to negotiate settlements of forward contract debt with individual banks as well as with Group of Seven leading industrial nations and the International Monetary Fund.

"Lehman Brothers is trying to use force to push ahead of other creditors, to be the first to seize all it can," Inkombank said. "It would be much more rational to decide the issue of debt payment on a multilateral basis, taking into consideration the interests of all creditors."