Deutsche Bank has told clients it can no longer guarantee full access to Russian stocks that belong to them, underlining the challenges global investors face to recover stranded investments in the country’s companies.

Germany’s largest bank said in a note dated June 9 and viewed by Reuters that it had uncovered a shortfall in the shares that back the depositary receipts (DRs) the bank had issued before the Ukraine invasion. The shares have been held in Russia by a different depositary bank.

In the circular, Deutsche attributed the shortfall to a decision by Moscow to allow investors to convert some of the depositary receipts into local stock. The conversion was carried out without the German bank’s "involvement or oversight," and Deutsche could not reconcile the company shares with the depositary receipts.

It is the first major bank to formally inform depositary receipt holders that they may not get to take ownership of precisely all the shares they are entitled to, two sources advising investors who continue to hold Russian depositary receipts told Reuters.

Depositary receipts are certificates issued by a bank representing shares in a foreign company traded on a local stock exchange. Swapping depositary receipts for shares in the Russian company is a first step toward an effort to recover their money.

Shares affected include those in national airline Aeroflot, construction firm LSR Group, mining and steel firm Mechel and Novolipetsk Steel. Mechel declined to comment, while the remaining companies did not immediately respond to a Reuters request for comments.

Western sanctions and Russian countermeasures have stranded assets citizens and companies hold on both sides of the political divide. Moscow also demands a 10% contribution to the federal budget, termed an "exit tax" by Washington.

The Kremlin has also taken assets under temporary control, seizing the Russian subsidiaries of two European energy firms in April, underscoring a strategy to lessen foreign influence on companies critical of its economic and political interests.

A significant number of investors ranging from small hedge funds to big global asset managers, still hold depositary receipts, investor sources said.

Most investors have marked down Russian assets to zero, but some still harbor hopes of recovering value in the future.

Irina Tsukerman, president of the geopolitical risk consultancy Scarab Rising, said the news should come as no surprise.

"Literally everything in Russia has been vulnerable, whether its these DRs, equities, real estate or any other form of financial asset," she told Reuters.

The Central Bank of Russia did not immediately comment on the matter.

Russia’s National Settlement Depository said the conversion of shares had been carried out in accordance with Russian legislation and that it was not the accounting institution responsible for implementing this mechanism.

‘Complete chaos’

Lawyers and other advisers have described the conversion process as "complete chaos."

"To a certain extent, this resulted in double counting because, without a reconciliation between Russia and foreign banks, an investor could get Russian shares and still hold the DRs at the foreign bank," said Grigory Marinichev, a law firm Morgan Lewis partner.

Deutsche Bank is now allowing investors to swap depositary receipts for shares as part of its plans to exit all Russian business, one source said.

The bank also determined that clients could be in a better position if they could convert their depositary receipts at least partially, this person added.

JPMorgan & Chase, Citigroup and BNY Mellon act as depositary banks for most other Russian depositary receipt programs, according to Clearstream.

All three banks declined to comment on whether they had also identified shortfalls, but their books remain closed due to the challenges with reconciliation, according to statements on their websites.

Deutsche said in its circular that if it were able to reconcile its books at a later date, then it would look to return more shares to their rightful owners.

But it cautioned that the net proceeds from sales of shares it could return to investors would likely be "substantially lower" than the current market price.

The bank said it understood Russia’s Government Commission for Control over Foreign Investments required that such shares be sold "at a discount of at least 50% from their appraised market value," the circular said.