Unpaid coupons for an obligation issued by a Russian company

Topic: Stock exchange / securities account Case number: 2024/11

The client held units of the same bond issued by a Russian company in custody accounts with two different banks. He received the coupon payments on time from Bank A but not from Bank B. Bank B told him that it had not received the coupon payments from its custodian bank either, which was attributable to problems with the sanctions in connection with the situation in Ukraine. It continued to try to obtain the payments from its custodian bank. The client was not satisfied with the response. He contacted the Ombudsman and explained that the Russian company had paid the coupons in full and on time, so that he was entitled to have the coupons credited to his securities by Bank B. Bank B confirmed to the Ombudsman its position and explained that, due to the western sanctions in connection with the situation in Ukraine and the Russian countermeasures in relation to such coupon payments, the individual banks were sometimes treated differently. Shortly after the end of the Ombudsman proceedings, she received the coupon payments from her custodian bank and credited them to the client.

In connection with coupon payments on Russian bonds, the Ombudsman has repeatedly experienced that some banks are able to credit these to their clients in full and more or less on time, while others are not. The latter each claimed that they had not received the payments themselves. They were not obliged under their custody account terms and conditions to credit the client for any outstanding payments or to advance such payments to their clients and to bear the risks of any default on such payments.

In the present case, the client repeatedly claimed that both banks A and B had the same custodian bank, which had received the full and timely coupon payments from the Russian company for all clients. However, on several follow-up enquiries by the Ombudsman, he was only able to substantiate his allegations to the extent that Bank A credited him with the coupon payments. He did not provide any further information about the allegedly complete and timely coupon payment by the Russian company.

The Ombudsman had no reason to doubt the statement by Bank B that it had not received the payments itself from its custodian bank. Bank B told the Ombudsman, as had already been the case with other banks in the same situation, that a number of banks were regularly involved in the custody chain for securities. These were often affected differently by the western sanctions in connection with the situation in Ukraine and the Russian countermeasures. This could lead to very complex situations in which some banks would receive the coupon payments in full and on time, while others would only receive them partially, late or not at all. However, due to the industry-standard contractual provisions, the bank was not obliged to credit coupon payments to a client with a securities deposit if it had not itself received the money. Such non-payments were part of the investor’s risk.

The Ombudsman was able to understand the statements made by Bank B regarding the problem and did not see any misconduct on its part. The Ombudsman was also unable to convince the client, who contacted him repeatedly after the mediation proceedings were concluded and claimed that Bank B had committed a legal offence. Fortunately, the situation was finally resolved, as Bank B did receive the requested coupon payments late and was able to credit them to the client.