Ukraine sabre-rattling hits Russian bank investors

3 minute read

The Sberbank logo is seen at the St. Petersburg International Economic Forum in Russia, June 6, 2019. REUTERS/Maxim Shemetov

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LONDON, Jan 20 (Reuters Breakingviews) - Russian bank investors are feeling the pain from sabre-rattling over Ukraine. U.S. President Joe Biden has vowed to punish the country’s lenders if his Russian counterpart Vladimir Putin invades. State-backed lenders like Sberbank (SBER.MM) and VTB (VTBR.MM) don’t depend on foreign funding and can count on government support. Yet tumbling stock prices suggest shareholders can still get crushed.

The United States says it has prepared a package of sanctions if Russia breaches Ukraine’s border. The most far-reaching financial penalty, flagged by Biden on Wednesday, would be to block Russian banks from dealing in dollars. That would be similar to past American measures against countries like Iran and North Korea. The risk of such sanctions, however, is that they would cut European countries off from much-needed Russian gas, because European lenders which dealt with Russian counterparts would also be at risk of repercussions. A less onerous punishment would be for Washington to ban Americans from holding debt or equity issued by Russian state lenders.

Since it annexed Crimea in 2014, the Kremlin has been bolstering its defences against financial penalties. Its central bank now has around $630 billion in foreign exchange and gold reserves, while the country’s National Wealth Fund is worth almost $200 billion. Its two biggest banks are also robust: Sberbank and VTB have more deposits than loans, meaning they aren’t dependent on external funding, and are reasonably capitalised. That limits the impact of existing restrictions, which cut these and several other banks off from issuing new equity or anything other than very short-term debt in the United States.

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Still, these protections haven’t cushioned investors from a slump triggered by the standoff between NATO and the Kremlin. Sberbank shares are down 20% so far this year and are nearly 40% below last October’s peak. VTB shares have lost 10% of their value in 2022. The difference is probably due to Sberbank’s bigger international investor base. The most recent filings show non-Russians held 47% of the bank’s shares, compared with just 15% at VTB, according to Refinitiv.

Investors could face further downside. Shares in Rusal (RUAL.MM) plunged more than 40% in 2018 after the aluminium producer was included in a new list of U.S. sanctions targeting Russian companies and their owners. Rusal’s importance to global aluminium markets meant it was swiftly reinstated. But ever since the company’s stock has traded below its pre-sanctions level. Bank shareholders have much to lose from diplomatic failure.

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

CONTEXT NEWS

- U.S. President Joe Biden on Jan. 19 warned of “severe economic consequences” if Russia invades Ukraine, adding that the country’s banks “will not be able to deal in dollars”.

- Western governments are no longer considering cutting Russian banks off from the Swift global payments system, Germany’s Handelsblatt newspaper reported on Jan. 17, citing German government sources. However, economic sanctions on major state banks were being considered as an alternative, the paper reported.

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Editing by Peter Thal Larsen and Oliver Taslic

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