MILAN (Reuters) - UniCredit's Russian subsidiary last year sued the Italian bank's own German arm as part of a court case relating to guarantee payments in Russia which UniCredit could not honour because of sanctions, the lender's annual report showed.

The case, which dates back to 2023, highlights the risks linked to its ongoing presence in Russia, which UniCredit failed to terminate when the Ukraine war broke out because CEO Andrea Orcel said he wanted a fair price to part with the business.

Following European Central Bank demands it speeds up its exit, UniCredit is now working to bring the profit contribution from its Russian business close to zero in 2027.

UniCredit has sued the ECB over its demands, saying it overstepped its remit, and has set its own exit targets.

The case prompted UniCredit to book 554 million euros ($580 million) in provisions against legal risks last year, up from 68 million in 2023. Charges to fully cover risks from the case totalled 0.3 billion euros in the fourth quarter alone.

The dispute stems from a guarantee package UniCredit Germany issued for one of its clients, German company Linde, which due to sanctions had to halt work on a gas processing plant it was building for St Petersburg-based RusChemAlliance.

When the project was halted, Gazprom-backed RusChem moved to draw down the guarantees from UniCredit Germany, and had a Russian court enforce the payments when UniCredit refused to honour them due to sanctions.

UniCredit said in its annual report that its Russian subsidiary, AO Bank, had made the payments to RusChem under the guarantees.

AO Bank then turned to UniCredit Germany to get the money back, on the basis of counter guarantee agreements between the two units. UniCredit Germany could not honour the counter guarantees due to sanctions and was taken to court by AO Bank.

UniCredit said a Russia court in October ordered its German unit to pay the guarantee amounts plus interest. In January 2025, UniCredit's appeal against that ruling was rejected.

UniCredit Germany now has the right to appeal further when the full decision is published, but the existing ruling applies in the meantime, it said. ($1 = 0.9553 euros)