Russian Emergency Funding Fails to Halt Stock Rout (Update2)
By Alex Nicholson and William Mauldin
Sept. 17 (Bloomberg) -- Russia poured $44 billion into its three largest banks and halted stock trading for a second day in a bid to stem the most severe financial crisis since its devaluation and debt default a decade ago.
The Finance Ministry extended the repayment period on loans available to OAO Sberbank, VTB Group and OAO Gazprombank to three months from one week. The benchmark Micex stock index plunged as much as 10 percent, taking its three-day decline to 25 percent, and brokerage KIT Finance said it's in talks with investors to sell a stake after failing to meet some obligations.
Russia's markets are facing the biggest test since the government defaulted in 1998. The decade-long economic boom is fading, foreign investors have pulled at least $35 billion from the nation's stocks and bonds since the five-day war in Georgia last month, and the collapse this week of Lehman Brothers Holdings Inc. and American International Group Inc. prompted a flight from emerging markets.
``I will tell my clients today to continue to abstain from buying Russian assets'' until economic problems are solved, said Zina Psiola, who manages a $1 billion Russian equities fund at Clariden Leu AG in Zurich.
The cost of lending has soared to a record, with the MosPrime overnight rate reaching 11.1 percent today, deterring speculative bets in equities. Russian stocks have lost more than $425 billion in value since reaching an all-time high May 17.
`Effectively Closed'
``The bond market remains effectively closed and banks are reluctant to lend to one another,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.''
Moscow-based KIT today said it is seeking to sell a stake after failing to meet some financial obligations related to repurchase agreements.
``Every day Russia falls due to people not being able to meet margin calls,'' said Marina Akopian manager of the Hexam EMEA Absolute Return Fund in London.
The ruble has lost 4.8 percent against the dollar since Aug. 8, when Russia sent troops and warplanes into Georgia for a military campaign that led to the worst relations with NATO since the Cold War. Investors have pulled at least $35 billion out of the country since the war, according to BNP Paribas SA estimates.
Economic Woes
Oil production, the government's biggest source of revenue, and accelerating inflation are adding to concerns for investors. Crude output is falling for the first time since 1998 and the inflation rate advanced more than expected in August, to near a five year high of 15 percent.
Industrial output grew more slowly than economists expected in August and economic growth in the second quarter slowed to an annual 7.5 percent from 8.5 percent in the previous period.
Still, unlike 1998, Russia is ``pretty well prepared'' to weather the turmoil, the World Bank's chief representative in Russia, Klaus Rohland, said today. The economy has grown every year for a decade and its international reserves have surged in the period by almost 50 times to $574 billion, more than any other country except China and Japan.
The Finance Ministry yesterday's added $20 billion to the interbank lending market.
`Shock Changes'
Sberbank, VTB and Gazprombank ``are market-making banks capable of insuring the liquidity of the banking system,'' the ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.
Finance Minister Alexei Kudrin said the measures should ``smooth over the shock changes'' in the markets. ``With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize,'' he said on state television.
The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest decline of the 88 indexes tracked by Bloomberg. The dollar-denominated RTS halted trading after similar declines.
Sberbank has fallen 32 percent and VTB Group 47 percent this week.
``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.
To contact the reporter on this story: Alex Nicholson in Moscow at [email protected]
Last Updated: September 17, 2008 09:18 EDT
By Alex Nicholson and William Mauldin
Sept. 17 (Bloomberg) -- Russia poured $44 billion into its three largest banks and halted stock trading for a second day in a bid to stem the most severe financial crisis since its devaluation and debt default a decade ago.
The Finance Ministry extended the repayment period on loans available to OAO Sberbank, VTB Group and OAO Gazprombank to three months from one week. The benchmark Micex stock index plunged as much as 10 percent, taking its three-day decline to 25 percent, and brokerage KIT Finance said it's in talks with investors to sell a stake after failing to meet some obligations.
Russia's markets are facing the biggest test since the government defaulted in 1998. The decade-long economic boom is fading, foreign investors have pulled at least $35 billion from the nation's stocks and bonds since the five-day war in Georgia last month, and the collapse this week of Lehman Brothers Holdings Inc. and American International Group Inc. prompted a flight from emerging markets.
``I will tell my clients today to continue to abstain from buying Russian assets'' until economic problems are solved, said Zina Psiola, who manages a $1 billion Russian equities fund at Clariden Leu AG in Zurich.
The cost of lending has soared to a record, with the MosPrime overnight rate reaching 11.1 percent today, deterring speculative bets in equities. Russian stocks have lost more than $425 billion in value since reaching an all-time high May 17.
`Effectively Closed'
``The bond market remains effectively closed and banks are reluctant to lend to one another,'' said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. ``The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.''
Moscow-based KIT today said it is seeking to sell a stake after failing to meet some financial obligations related to repurchase agreements.
``Every day Russia falls due to people not being able to meet margin calls,'' said Marina Akopian manager of the Hexam EMEA Absolute Return Fund in London.
The ruble has lost 4.8 percent against the dollar since Aug. 8, when Russia sent troops and warplanes into Georgia for a military campaign that led to the worst relations with NATO since the Cold War. Investors have pulled at least $35 billion out of the country since the war, according to BNP Paribas SA estimates.
Economic Woes
Oil production, the government's biggest source of revenue, and accelerating inflation are adding to concerns for investors. Crude output is falling for the first time since 1998 and the inflation rate advanced more than expected in August, to near a five year high of 15 percent.
Industrial output grew more slowly than economists expected in August and economic growth in the second quarter slowed to an annual 7.5 percent from 8.5 percent in the previous period.
Still, unlike 1998, Russia is ``pretty well prepared'' to weather the turmoil, the World Bank's chief representative in Russia, Klaus Rohland, said today. The economy has grown every year for a decade and its international reserves have surged in the period by almost 50 times to $574 billion, more than any other country except China and Japan.
The Finance Ministry yesterday's added $20 billion to the interbank lending market.
`Shock Changes'
Sberbank, VTB and Gazprombank ``are market-making banks capable of insuring the liquidity of the banking system,'' the ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.
Finance Minister Alexei Kudrin said the measures should ``smooth over the shock changes'' in the markets. ``With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize,'' he said on state television.
The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest decline of the 88 indexes tracked by Bloomberg. The dollar-denominated RTS halted trading after similar declines.
Sberbank has fallen 32 percent and VTB Group 47 percent this week.
``The primary objective of these measures is to inject liquidity to calm nervousness,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. ``Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,'' he said.
To contact the reporter on this story: Alex Nicholson in Moscow at [email protected]
Last Updated: September 17, 2008 09:18 EDT
