- VTB Capital alleges Citibank breached its contractual discretion (the Braganza duty) by irrationally valuing and liquidating Gazprom-linked securities after a collateral demand, causing nearly $16M in losses.
- Citibank says extreme post-invasion market dysfunction made open-market sales impossible, so it moved the positions to its equity-derivatives desk and used an internal transfer price to reflect assumed risk.
- The case turns on whether Citibanks valuation method matched market practice and met the English-law requirement that discretionary decisions be reasoned and non-arbitrary.
- The dispute underscores how sanctions and crisis liquidity can trigger collateral-enforcement valuation fights and reshape expectations for discretionary pricing clauses.
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The key contested issue in this case is the allegation by VTBC (VTB Capital PLC) that Citibank breached the so-called Braganza duty by acting irrationally when calculating the liquidation value of securities after a demand for collateral, leading to approximately $16 million in losses. VTBC claims that Citibank’s internal approach diverged from accepted market practice and was arbitrary in its execution.
Citibank’s response rests on its assertion that the prevailing market was dysfunctional: that it could not liquidate the Gazprom positions by trading in the open market due to severe volatility and illiquidity triggered by Russia’s invasion of Ukraine. Accordingly, Citibank transferred those positions internally to its equity derivatives trading desk (a market maker) and assigned a charge of $38 million as the liquidation amount, reflecting market risk and internal cost. Citibank thus argues its discretion was used in a reasoned manner under extreme conditions.
Under English law, the Braganza duty requires discretion to be exercised reasonably and not arbitrarily; it must follow contractual terms and market norms. VTBC’s claim that Citibank’s method was inconsistent with market practice opens the door for judicial scrutiny over expert valuation, internal transfer pricing versus external market sales, and whether Citibank’s decision met the reasonableness standard.
Strategically, this case highlights the exposure financial institutions face when collateral defaults intersect with geopolitical risk and market stress. The choice of liquidation method in contracts with discretionary clauses could become a battleground—pricing models, internal transfer costs, and the structure of collateral clauses should be carefully evaluated. Moreover, as similar insolvency and recovery cases involving Russian banks have shown (e.g. VTB’s £205 million claim amid UK sanctions), regulatory and legal regimes can sharply impact recoveries.
Open questions include: what evidence VTBC will present to prove that standard market practice differs; whether Citibank’s internal pricing reflects fair value; how courts will factor in the effect of sanctions, liquidity constraints, and trading restrictions; and whether this decision could reset expectations for discretionary valuation clauses in similar contracts.
Supporting Notes
- VTBC claims that Citibank acted irrationally or in breach of market practice when calculating the liquidation amount, resulting in VTB-subsidiary loss of almost USD 16 million.
- Citibank’s defense: open market liquidation was not possible due to market conditions; securities were transferred internally to equity derivatives trading team acting as market maker.
- Citibank charged its internal arm a price reflecting fair risk assumption—USD 38 million—for the transfer of positions.
- The legal standard invoked is the Braganza duty under English law: discretion must not be exercised irrationally or capriciously.
- Similar recent case: VTB lost a UK court bid to recover approximately £205 million in debts from its UK unit after regulatory changes to sanctions licensing widened and constrained its claim recovery.