Investors in Russia face mark-to-no-market problem

4 minute read

Russian Rouble coins are seen in front of displayed Ukrainian's and Russia's flag colours in this illustration taken, February 24, 2022. REUTERS/Dado Ruvic/Illustration/Files

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LONDON, Feb 28 (Reuters Breakingviews) - Investors in Russia are facing a mark-to-no-market problem. The rouble tanked and the country’s stock exchange did not open after the West cranked up sanctions against President Vladimir Putin. Even when trading resumes, foreign money managers and companies face the prospect of writing off their investments in the country, as oil giant BP did.

Investors in Russian securities face two big questions after the United States and allies restricted the country’s foreign exchange reserves and promised to kick some banks out of the SWIFT global payments system. The first is whether investors will be able to sell. Russia’s equity and derivatives markets remained closed Monday, while the central bank ordered brokers not to execute sell orders from foreign shareholders read more .

The second question is whether they’ll be able to get their money out. Russian authorities are scrambling to preserve foreign currency reserves, while banks are navigating a thicket of rapidly changing sanctions when processing international payments. It’s far from clear what investors like Norway’s sovereign wealth fund, which said it was selling its $2.8 billion portfolio of Russian securities read more , will get back.

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Western companies with big businesses in Russia face similar challenges. The European Central Bank said Russian lender Sberbank’s (SBER.MM) subsidiaries in Croatia and Slovenia were “likely to fail”. It’s not hard to imagine the Russian central bank taking similar aim at local subsidiaries of European lenders like Raiffeisen Bank (RBIV.VI) or Société Générale (SOGN.PA) read more . A rapid exit is costly, as BP demonstrated when announcing it would offload its 20% stake in Russia’s Rosneft (ROSN.MM). Faced with a dearth of obvious buyers, the company may end up writing off its entire $25 billion investment read more .

Global financial markets should be able to cope with some turmoil in Moscow. According to Morningstar, Russian equities accounted for less than 0.3% of the 12 trillion euros invested in long-term European funds at the end of January. However, the consequences of disrupting flows of capital and credit with a $1.4 trillion economy will take longer to become clear. In 1998, more than a month passed between Russia defaulting on its sovereign debt and the collapse of Long-Term Capital Management, necessitating a bailout by Wall Street banks. Given the broader geopolitical uncertainty, Russia’s mark-to-no-market problem looks set to ricochet around the world for weeks to come.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


- Russia’s central bank more than doubled its key policy rate on Feb. 28 and introduced some capital controls as it scrambled to shield the economy from unprecedented Western sanctions that sent the rouble tumbling to record lows.

- The main interest rate will rise to 20%, from 9.5%, the central bank said, “to compensate for the increased depreciation and inflation risk.”

- The monetary authority also ordered companies to sell 80% of their foreign currency revenues, and temporarily banned Russian brokers from selling securities held by foreigners. It did not specify which securities the ban applies to. The central bank later said the stock and derivatives markets would remain closed on Feb. 28.

- The rouble slid by 21% to 100 against the U.S. dollar by 1000 GMT, while shares in Russian companies listed in London fell sharply; Russian lender Sberbank’s stock slid 62%, and oil giant Rosneft was down 41%.

- European lenders with Russian subsidiaries were also affected. Shares in Raiffeisen Bank, Erste Bank and Société Générale were down 10% or more. Shares in BP, which announced on Feb. 27 that it would quit Russia, were down 6%.

- Norway’s $1.3 trillion sovereign wealth fund will divest its Russian assets, Prime Minister Jonas Gahr Støre announced on Feb. 27. The assets were worth 25 billion Norwegian crowns ($2.8 billion) at the end of 2021.

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Editing by Rob Cox, Oliver Taslic and Karen Kwok

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