Analysis-Europe's banks dim lights as they brace for winter blackout

© Reuters. A general view of the Canary Wharf financial district in London, Britain April 25, 2021. Picture taken April 25 with a drone. REUTERS/Kevin Coombs

By Sinead Cruise and Iain Withers

LONDON (Reuters) - Some of Europe's biggest banks are preparing back-up generators and to dim the lights as they brace for potential power cuts and energy rationing that threaten the money system underpinning the region's economy.

As Russia throttles gas supplies to the continent, banks are stress-testing how they can cope with power shortages and lining up alternative sources of energy, such as generators, so that ATMs and online banking don't go dark.

There is a special urgency for financial firms to act because of the importance of payments and transactions to Europe's economy, already fragile due to the fallout of war.

While the sector adapted to COVID-19 lockdowns and remote working, power blackouts or rationing present a very different challenge. "The banking system is part of other systems," said Gianluca Pescaroli, professor in operational continuity and disaster resilience at University College London, who has advised authorities in London on power outages. "My main concern is the cascading effects on society of failures to ATMs or cashless transactions. Similarly, the dependencies banks have on other services such as the internet." JPMorgan (NYSE:JPM), which employs thousands across European hubs in London and Frankfurt, has conducted power outage simulations, a source familiar with the matter told Reuters. Depending on the severity, the bank could switch to diesel generators that could keep key office locations up and running for several days, the person said.

The biggest U.S. bank lends money to companies in Europe and trades stocks and bonds in addition to running a British consumer bank. Italy's second-biggest bank UniCredit has tested its operational resilience this summer, a source familiar with the plans said. Its latest disaster recovery test focused on the resilience of data processing, the source said, adding the bank's two core data centres had power supply from two independent power stations. It's unclear how long its power would last. Euronext, which runs the French and Italian stock exchanges, said it had reassessed its energy use since Russia's invasion of Ukraine, adding it had back-up generators, without elaborating.

HOT WATER

Banks are also taking visible steps to acknowledge the energy crisis, such as paring office space and consolidating staff in fewer buildings. Deutsche Bank (ETR:DBKGn) said it was rolling out a slew of energy saving measures across its 1,400 buildings in Germany, to save 4.9 million kWh of electricity each year - enough to power roughly 49,000 light bulbs for an hour. The lender is shutting off hot running water in washrooms, adjusting workplace temperatures, switching off all interior branch lighting and illuminated outdoor advertising overnight. The fountain in front of its head office in Frankfurt will also be turned off. Regulators are on high alert. The supervisory arm of the European Central Bank and its equivalent UK peer, the Prudential Regulation Authority (PRA), both require lenders to have plans to cope with disruption.

Firms in Britain are required to identify their "Important Business Services" and the methods of resolving vulnerabilities should threats materialise.

Nonetheless, experts fear that few companies are prepared for lengthy blackouts of more than a few days. "This represents a serious gap in resilience planning," said Avi Schnurr, CEO of the Electric Infrastructure Security Council, a think-tank that advises on preparing for such hazards.

Banks should already be making arrangements to ensure that they can cope even in a prolonged power outage, with agreements for transactions to be logged retroactively once systems are back online, he said. BNP Paribas (OTC:BNPQY), France's biggest bank, is addressing power consumption across the approximate 2,750 branches, offices and data centres it operates across France, Belgium and Italy, a source close to the French lender said.

The possibility of electricity supply cuts was being "closely monitored" and covered by the Business Continuity Plan in place at the bank.

European gas prices have surged after Russia's state-controlled Gazprom (MCX:GAZP) said it would indefinitely extend a shutdown to the major Nord Stream 1 gas pipeline.

Europe has accused Russia of weaponising energy supplies in retaliation for Western sanctions imposed on Moscow since the outbreak of hostilities with Ukraine. Russia blames those sanctions for causing the gas supply problems, which it puts down to pipeline faults.

In Britain, rising energy costs are squeezing businesses and consumers, who are facing runaway inflation.

State-backed NatWest said it had partially mitigated the financial hit by hedging future costs of its energy.

Major insurers also said they were cutting their energy use. Switzerland's Zurich said it would darken offices at night and mothball "decorative power consumers" like fountains.

Should the crisis worsen, the sources said companies will take more drastic steps. And while staff may notice, the firms are hoping that customers won't.

"Additional measures that can be taken should the energy situation worsen include using only certain floors of the buildings, and the shutdown of certain services such as the employee gym," the insurer said.