Russia 01 (May 08 - Jul 10)

[winston]

Financial Times: Moscow to pump $37 billion into biggest state institutions

“Russia on Tuesday stepped up efforts to tackle the financial crisis with a commitment to pump $37 billion in long-term loans into its biggest state banks, amid signs that the turmoil was spreading to the real economy.

“Even as Dmitry Medvedev, the president, unveiled the plan to offer the five-year loans – mainly through Sberbank, the state-controlled bank – three big Russian companies announced cutbacks in production because of a shortage of finance.

“Investors shrugged off the rescue plan amid mounting fears that the state funding would not find its way to the real economy. A previous state package to boost liquidity by more than $100 billion is being hoarded by the biggest banks instead of being lent out to entities most in need of cash.

“‘The bigger problem is question marks over future growth,’ said Chris Weafer, chief strategist at Uralsib investment bank. ”The lack of financial lubrication is causing the economy to grind to a halt. These funds need to be ramrodded into the system.”

Source: Charles Clover and Catherine Belton, Financial Times, October 8, 2008.

[winston]

Russia enduring capital flight 'nightmare'

The scale of capital flight from Russia during the current financial crisis is taking on nightmarish proportions, a top government official told reporters in Moscow on Friday.

''No-one in their worst nightmare could have predicted the extent of capital flight,'' the official said, adding that US$33 billion (HK$257.4 billion) had been taken out of the country in August and September alone.

The official blamed capital flight largely on ''speculative capital.''

Good economic conditions ''brought a lot of speculative capital to Russia. Unfortunately we became a refuge for speculative capital. People who just come for a while, make a profit and then sell. That time has come,'' he said.

( I think it is Speculative Capital brought a lot of good economic conditions to Russia )

[millionairemind]

This could have repercussions going forward into the week in both Europe as well as US as the top four banks in Iceland now hold foreign liabilities in excess of $100 billion, debts that dwarf Iceland's gross domestic product of $14 billion.

Russia not yet ready to lend to Iceland
Fri Oct 17, 2008 3:57pm EDT Email | Print | Share| Reprints | Single Page | Recommend (-) [-] Text [+]

REYKJAVIK/MOSCOW (Reuters) - Russia is not yet convinced it should make a loan to Iceland to help dig it out of a financial crisis, a Russian source said on Friday.

But as the island ran down more of its meager foreign reserves, Iceland said it hoped its biggest bank, Kaupthing, would next week be able to re-open its Luxembourg branch to pay back Belgian and Luxembourg depositors.

Two weeks after a banking collapse destroyed the value of its economy and currency, Iceland has still to decide whether to go to the International Monetary Fund (IMF) for help.

Prime Minister Geir Haarde said a decision was still expected within a week. In the meantime, talks with Russia this week on a loan have not yet led to a deal.

"At the current moment, we do not yet have enough reasons to give them credit," a senior Russian government source told Reuters. "We did not refuse. We are continuing the talks."

The island of 300,000 people is the most serious state victim of the global credit crunch. But banking problems in Ukraine and Hungary have also sent those countries scrambling to the IMF and European Central Bank amid fears they might be next.

Billions of dollars in foreign savings are locked up inside Iceland's banks, attracted by some of the highest interest rates in Europe. One such group is people from Belgium and Luxembourg.

http://www.reuters.com/article/topNews/ ... me=topNews

[millionairemind]

1998 Redux

Russian default risk tops Iceland as crisis deepens
Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

By Ambrose Evans-Pritchard
Last Updated: 10:48PM BST 23 Oct 2008

Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund.

Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe.

Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight, recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800, signalling total revulsion by investors.

Rating agency Standard & Poor's issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state.

S&P said Russia's budget was likely to slip into deficit in 2009 as result of the dramatic slide in oil and metal prices this autumn, and cautioned that "the ongoing concentration of the financial system in state hands" had become a political risk.

Russian companies must roll over $47bn of foreign loans over the next two months, and a further $150bn or so next year, a task that has become close to impossible as investors flee Eastern Europe.

President Dmitry Medvedev said yesterday that disaster could still be kept at bay. "We can avoid a banking, forex or debt crisis and get through today's difficulties. Russia has not yet got in this difficult situation. It must avoid this," he said.

Hans Redeker, currency chief at BNP Paribas, said markets no longer believe Russia is strong enough to guarantee the estimated $530bn of foreign debts accumulated by its companies during the break-neck expansion of the oil boom. "The surge in Russian CDS spreads is paralysing the whole system. The government can offer very little help to the banks at this point because its own sovereign debt is in question," he said.

"This crisis is starting to look like the Black Wednesady in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said.

Kingsmill Bond, chief strategist at Russian investment bank Troika Dialog, said Russia's Achilles Heel is the lack of a proper rouble bond market. This had forced companies to raise half their money abroad, in foreign currencies.

"The consequence is that foreign debt repayment has had a dramatic impact. It has led to a scramble for assets and forced selling of good assets in order to raise cash to pay debt. The only way for oligarchs to raise money at present is by selling their equity," he said. Russia's "unique fragility" is that over $1 trillion of debt needs to financed from a domestic capital pool of $600bn.

Even so, Mr Bond said Russia is still sitting on over $500bn of foreign reserves – the world's third biggest – despite losses of $67bn since August from capital flight. "The government still has enormous firepower to solve the problem," he said.

[LenaHuat]

Even so, Mr Bond said Russia is still sitting on over $500bn of foreign reserves – the world's third biggest – despite losses of $67bn since August from capital flight. "The government still has enormous firepower to solve the problem," he said.

And Russians (so few of them really) can juz raise their iron curtain and survive off their land.

[millionairemind]

The way they are burning thro' the reserves to prop up the mkt and ruble is worrisome..

New worries grip Russian economy
By Andrew E. Kramer Published: October 31, 2008

MOSCOW: At the start of the global financial crisis, the Russian authorities insisted they had ample cash reserves to weather any storm. But as sorrow has succeeded sorrow — plummeting oil prices, a 70 percent descent in stock markets here, a global credit crisis and a slow-motion bank run on this country's private banks — Russia has had to spend its reserves faster than anybody imagined.

On Aug. 8, the reserves, which include foreign currency, gold and other assets, peaked at just under $600 billion, the third-largest in the world. By this week, they had fallen to $484 billion, as money flew out of government vaults to support the ruble, prop up the banking system and bail out the businesses of the rich Russians known as oligarchs.

The fall this week — $31 billion — was the steepest so far. With no end to the global troubles in sight and a worldwide recession likely, which could further reduce oil prices, the question is: How long can Moscow keep this up before its reserves grow thin?

Dark pictures are easy to paint. If oil prices continue to fall, the rising expectations that Russians have had for the last several years — the most prosperous in generations — will be foiled. Zero economic growth would pull the rug from under the hope for a middle-class life for millions, shrinking their horizons back to cramped apartments and garden plots. Already, Russian tour agencies have defaulted on payments to air travel companies — canceling, for some Russians, foreign travel that has come to be prized.

"Possibilities that seemed accessible are now gone, perhaps for good," said Vladislav Sergeyev, 28, an art director at an advertising company.

[winston]

Dubai World eyes Russia investments despite crisis

DUBAI - Government-owned investor Dubai World said on Monday it was looking at port, logistics and urban development investments in Russia, and was not slowing any of its projects due to the global financial crisis.

Dubai World Secretary-General Farid Ahmed told reporters that Limitless, a real estate development arm of the company, was building 150,000 homes in Russia.

'We are continuing with our projects without stopping or slowing down internationally or regionally,' he said, adding that Dubai World had no problems funding its projects.

Dubai World Chairman Sultan Ahmed bin Sulayem said last month that the company, whose businesses range from shipping to real estate, saw once-in-a-lifetime opportunities stemming from the financial crisis and remained bullish on its home market.

Dubai World is the holding company of Limitless and Nakheel, the developer of three palm-shaped man-made islands off the coast of Dubai. It also owns the world's fourth-largest port operator, DP World. -- REUTERS

[millionairemind]

This is machiam like 1998 again..

Ruble Devaluation Looms on Oil; Troika Sees 30% Drop (Update3)

By Emma O'Brien and Ye Xie

Nov. 10 (Bloomberg) -- Russia's currency reserves, the third-biggest in the world, are no match for tumbling oil prices and an exodus of capital that may force the central bank to accept a devalued ruble.

Just 10 years ago, Russia let the ruble fall as much as 71 percent as the government defaulted on $40 billion of debt and world stock and bond markets collapsed. Now, the combination of a 60 percent drop in oil prices from their peak in July, slowing economic growth and increasing investor concern about emerging markets are draining Russia's foreign reserves, which fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.

Russia, which uses reserves to curb swings in the ruble that hurt the competitiveness of exports, may find the resistance futile after the currency fell 13 percent against the dollar since Aug. 1. The central bank sold a record $40 billion in October, according to Moscow-based Trust Investment Bank. Troika Dialog, the country's oldest investment bank, said the currency may slump as much as 30 percent in the event of a devaluation.
http://www.bloomberg.com/apps/news?pid= ... refer=home

[millionairemind]

Market tanked 10%...

Ruble Devaluation Concern Triggers 10% Plunge in Russian Stocks

By Laura Cochrane and Emma O'Brien

Nov. 11 (Bloomberg) -- Russia's ruble fell the most in a month and stocks tumbled after the central bank said it may let the currency weaken as officials grapple with the worst financial crisis since the 1998 devaluation.

The ruble slumped 1 percent against the country's dollar- euro basket after central bank chairman Sergey Ignatiev said the currency has a ``certain tendency toward weakening,'' during a televised press conference yesterday. Russia's Micex Index plunged 10 percent, the biggest decline worldwide today.

``This has put fear into the market,'' said Lars Christensen, head of emerging-market research at Danske Bank A/S in Cophenhagen. ``It may lead to domestic Russian players leaving the ruble, triggering panic-selling.''
http://www.bloomberg.com/apps/news?pid= ... refer=home

[millionairemind]

Russia lifts rates to 12pc to save rouble as crisis deepens
Russia's central bank has raised interest rates a full percentage point to 12pc to prevent a collapse of the rouble following a day of mayhem on the Moscow markets, prompting concerns that the financial crisis may be spiralling out of control.

By Ambrose Evans-Pritchard
Last Updated: 6:16AM GMT 12 Nov 2008

The surprise move last night came after the authorities had spent $7bn of foreign reserves in a matter of hours trying to defend the currency, at a lower level. The central bank has now spent $84bn of its reserves over the last month.

"The devaluation has begun," said Lars Christensen, Russia strategist at Danske Bank.

"The rouble has fallen out of its basket against the euro and the dollar. Russia is facing a serious confidence crisis and this could set off a self-fulfilling panic. What is clear is that economy is slowing drastically."

Chris Weafer, strategist at UralSib, said there were echoes of the 1998 crisis. "If people lose confidence, we could have a massive run on the banks as we saw twice in the nineties: then the game is up,'' he told Bloomberg.

Russia is battening down the hatches for a deep slump. It has downgraded is oil forecast to $50 a barrel next year, a level that will play havoc with the state finances. Expecting trouble, the Kremlin has mobilised the police to crush dissent.

"Anti-crisis groups have been set up in the regions to intercept any early indications of destabilisation," said president Dmitry Medvedev.

"If anyone tries to exploit the financial crisis, the authorities should bring criminal charges. We don't want a return to the 1990s when everything was seething," he said.

Donald Jensen, an adviser to the US government, told a Russia Foundation meeting yesterday that the credit crunch posed a grave threat to the Kremlin. "This is pushing the Putin regime towards a crisis. Salaries are being held back and factories are being shut down in major cities. The regime cannot address all the demands that it is faced with," he said.

The Moscow bourse was closed after the RTS index plunged 10pc, down over 70pc from its peak. Credit default swaps measuring bankruptcy risk on Russian debt jumped 150 basis points to 630 as foreign investors scrambled to hedge exposure.

"There is massive deleveraging going on in Russia on all fronts," said Luis Costa, an economist at Commerzbank.

Mr Costa said the oil slide had led to an abrupt change in the fortunes of Russia, which relies on commodities for 80pc of its foreign earnings. "They are not going to have a current account surplus any longer. They could swing from plus 7pc of GDP to minus 2pc to 3pc next year, which is quite a reversal," he said.

Any devaluation is a political risk given fresh memories of the 1998 crisis, when many Russians lost their savings. The state-owned giant Sberbank has lost 2.5pc of its deposits over the last month, while smaller lenders have suffered a classic bank run. Fitch Ratings downgraded twelve banks yesterday, warning of an "increased likelihood of a deterioration in the government's ability to provide support".

Russia still has the world's third biggest foreign reserves, but these have shrunk from $598bn to under $480bn due to capital flight since the Georgia war in August. Crucially, Russia's banks, oil producers, miners, and steel companies have amassed $510bn of foreign debt, mostly in short-term loans.

Kingsmill Bond, from Russia's investment bank Troika Dialog, said the Kremlin has committed $280bn to shore up these companies. While it still has some firepower left, it cannot weather a long slump in oil prices.

If crude drops to around $50 a barrel, and stays there, the combined losses on Russia's current and capital accounts will reach $110bn a year. "We estimate that the rouble could drop by around 30pc", he said.