March 14, 2014 - GLOBAL ECONOMY - Russian companies are pulling billions out of western banks, fearful that any
US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.
Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.
The flight comes as last-ditch diplomatic talks between Russia’s foreign minister and the US secretary of state to resolve the tensions in Ukraine ended without an agreement.
Markets were nervous before Sunday’s Crimea referendum on secession from Ukraine. Traders and businesspeople fear this could spark western sanctions against Russia as early as Monday.
Yields on Russia’s 10-year government bonds rose close to 9.7 per cent on Friday, compared with less than 8 per cent in January. The rouble hit 36.7 to the dollar, near to its weakest rate on record.
It also emerged on Friday that Russia’s top 10 billionaires, led by Alisher Usmanov, had lost a combined $6.6bn of their net worth over the past week, according to research firm Wealth-X. Russian equities, which showed more weakness on Friday, have lost 20 per cent of their value since the start of the year.
“You don’t need to have sanctions in place to cause economic turmoil,” said Christopher Granville, managing director of Trusted Sources, an emerging markets research firm. “The expectation is enough.”
Strobe Talbott, president of the Brookings Institution, who served in the State Department under Bill Clinton, said: “The irony is that the Russian banking sector has made quite a lot of progress in plugging into the global system. That means it is vulnerable, and a good lever for applying pressure.”
Data published by the Federal Reserve Bank of New York sparked speculation that the Russian central bank was also reducing its vulnerability to potential sanctions. The data showed a drop of $105bn in Treasuries held by foreign institutions for the week ending March 12.
“We can only speculate about who might have decided to move their securities out of the Fed and into a third-party custodian, but one obvious candidate is Russia,” said Lou Crandall at Wrightson Icap.
Russia held $138.6bn in US government debt at the end of December, according to the US Treasury.
One senior Moscow banker said 90 per cent of investors were already behaving as if sanctions were in place, adding that this was “prudent exposure management”.
These moves represent the flipside of the more obvious withdrawal of western money from Russian markets that has been evident over the past fortnight.
Traders and bankers said US banks had been particularly heavy sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $75bn of exposure to Russia.
WATCH: EU readies sanctions against Russia.
Joseph Dayan, head of markets at BCS, one of Russia’s largest brokers said: “It’s been quite an ugly picture in Russian bonds the last few days and some of it has to do with international banks reducing exposure.”
Although foreign banks have not yet begun cutting credit to Russian companies en masse, bankers said half a dozen live deals to fund some of Russia’s biggest companies were in limbo as lenders waited to see how punitive western sanctions would be.
Bankers said Barclays of the UK had withdrawn from a plan with Russia’s VTB jointly to fund an Essar Energy deal. Barclays declined to comment.
Alexei Kudrin, a former Russian finance minister and a member of Vladimir Putin’s economic council, warned on Thursday that sanctions could drive an extra $50bn of capital outflows from the Russian economy per quarter.
The New York Fed and Russia’s central bank declined to comment, as did Sberbank, VTB and Lukoil.
Meanwhile, in a sign of the EU’s continuing economic ties to Russia, South Steam, the gas pipeline project backed by Gazprom of Russia, Eni of Italy, EDF of France and BASF of Germany, announced that it had signed a contract worth about €2bn with Saipem of Italy to build the offshore stretch of the route under the Back Sea from Russia to Bulgaria. Construction is scheduled to start in June. - FT.
The record drop in U.S. government securities held in custody at the Federal Reserve is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.
Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data released yesterday, as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.
“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”
Crimea is preparing for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Secretary of State John Kerry warned Russia that the U.S. and Europe could take serious action after the referendum should there be no sign of a resolution to the Ukraine crisis.
Diplomatic Efforts
Kerry, who told a Senate panel in Washington that “nobody doubts” Crimea will vote to leave Ukraine, met with Russian Foreign Minister Sergei Lavrov in London today.
“Escalating talk of sanctions over the Ukraine conflict would give it every reason to move those holdings to an off-shore custodian,” according to Wrightson ICAP, referring to Russia.
The previous biggest drop in Fed custody holdings was $32 billion in June after the central bank indicated they may reduce purchases of Treasuries. Andrea Priest, a spokeswoman for the Fed Bank of New York, declined to comment.
“How much more room it has to go depends on who’s doing the shift,” said Shyam Rajan, rates strategist in New York at Bank of America Corp. “It could just be a shift in where they hold Treasuries as opposed to outright selling. If they had sold we would have been much higher in yields this week. We’ve seen a rally.”
Bank Rossi
A spokeswoman for Russia’s central bank said it hasn’t disclosed changes in its foreign-asset holdings.
“Bank Rossii publishes data on managing foreign-currency assets not earlier than six months after the given period because of the high sensitivity of prices on global financial markets to the actions of largest market participants, including the Russian central bank,” Anna Granik, a spokeswoman for Moscow-based central bank, said in an e-mailed response to questions.
The decrease in custody holdings at the Fed spurred speculation Russia may have moved to raise funds to defend its currency as the turmoil worsens. The ruble has declined 10.3 percent against the dollar this year and reached a record low 36.9 per dollar on March 3. It declined 0.2 percent today to 36.6.
“If they were selling to defend the currency, the market would have felt the impact on yields more substantially,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA.
Central Banks
Central banks at the end of last year may have been adding to their holdings in Europe, such as Belgium’s central bank. Belgium custodial holdings of Treasuries rose by 28 percent in December to $256.8 billion, according to Bloomberg data.
“A lot of people are looking at Belgium,” Keeble said, referring to shifts in foreign reserves.
Foreign holdings of Treasuries totaled a record $5.79 trillion at the end of last year, according to Treasury data released in February. Fed holdings for its own account were $2.2 trillion. The U.S. central bank has begun tapering its monthly purchases of Treasuries to $35 billion as it winds down monetary stimulus that was designed to help foster economic growth.
China, the biggest foreign U.S. creditor, held $1.27 trillion of U.S. government bonds as of December. Japan is the second-largest holder at $1.18 trillion.
The 10-year note posted the biggest weekly gain in almost two years, with the yield dropping as much as 18 basis points. The yield was little changed today at 2.65 percent, according to Bloomberg Bond Trader prices.
“On the margin, it’s a net negative for the Treasury market because it’s a reminder that there’s a potential seller of Treasuries for non-monetary reasons,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “If the market believed they were going to do it, Treasury yields would not be at 2.65 percent.” - Bloomberg.
Russian Companies Withdraw BILLIONS From The West.
Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.
The flight comes as last-ditch diplomatic talks between Russia’s foreign minister and the US secretary of state to resolve the tensions in Ukraine ended without an agreement.
Markets were nervous before Sunday’s Crimea referendum on secession from Ukraine. Traders and businesspeople fear this could spark western sanctions against Russia as early as Monday.
Yields on Russia’s 10-year government bonds rose close to 9.7 per cent on Friday, compared with less than 8 per cent in January. The rouble hit 36.7 to the dollar, near to its weakest rate on record.
It also emerged on Friday that Russia’s top 10 billionaires, led by Alisher Usmanov, had lost a combined $6.6bn of their net worth over the past week, according to research firm Wealth-X. Russian equities, which showed more weakness on Friday, have lost 20 per cent of their value since the start of the year.
“You don’t need to have sanctions in place to cause economic turmoil,” said Christopher Granville, managing director of Trusted Sources, an emerging markets research firm. “The expectation is enough.”
Strobe Talbott, president of the Brookings Institution, who served in the State Department under Bill Clinton, said: “The irony is that the Russian banking sector has made quite a lot of progress in plugging into the global system. That means it is vulnerable, and a good lever for applying pressure.”
Data published by the Federal Reserve Bank of New York sparked speculation that the Russian central bank was also reducing its vulnerability to potential sanctions. The data showed a drop of $105bn in Treasuries held by foreign institutions for the week ending March 12.
“We can only speculate about who might have decided to move their securities out of the Fed and into a third-party custodian, but one obvious candidate is Russia,” said Lou Crandall at Wrightson Icap.
Russia held $138.6bn in US government debt at the end of December, according to the US Treasury.
One senior Moscow banker said 90 per cent of investors were already behaving as if sanctions were in place, adding that this was “prudent exposure management”.
These moves represent the flipside of the more obvious withdrawal of western money from Russian markets that has been evident over the past fortnight.
Traders and bankers said US banks had been particularly heavy sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $75bn of exposure to Russia.
WATCH: EU readies sanctions against Russia.
Joseph Dayan, head of markets at BCS, one of Russia’s largest brokers said: “It’s been quite an ugly picture in Russian bonds the last few days and some of it has to do with international banks reducing exposure.”
Although foreign banks have not yet begun cutting credit to Russian companies en masse, bankers said half a dozen live deals to fund some of Russia’s biggest companies were in limbo as lenders waited to see how punitive western sanctions would be.
Bankers said Barclays of the UK had withdrawn from a plan with Russia’s VTB jointly to fund an Essar Energy deal. Barclays declined to comment.
Alexei Kudrin, a former Russian finance minister and a member of Vladimir Putin’s economic council, warned on Thursday that sanctions could drive an extra $50bn of capital outflows from the Russian economy per quarter.
The New York Fed and Russia’s central bank declined to comment, as did Sberbank, VTB and Lukoil.
Meanwhile, in a sign of the EU’s continuing economic ties to Russia, South Steam, the gas pipeline project backed by Gazprom of Russia, Eni of Italy, EDF of France and BASF of Germany, announced that it had signed a contract worth about €2bn with Saipem of Italy to build the offshore stretch of the route under the Back Sea from Russia to Bulgaria. Construction is scheduled to start in June. - FT.
Fed Custody Holdings Record Decline Fuels Russia Speculation.
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| Treasuries held in custody at the Federal Reserve by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data, as the turmoil in Ukraine intensified. Photographer: Andrew Harrer/Bloomberg |
The record drop in U.S. government securities held in custody at the Federal Reserve is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.
Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, according to Fed data released yesterday, as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.
“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”
Crimea is preparing for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Secretary of State John Kerry warned Russia that the U.S. and Europe could take serious action after the referendum should there be no sign of a resolution to the Ukraine crisis.
Diplomatic Efforts
Kerry, who told a Senate panel in Washington that “nobody doubts” Crimea will vote to leave Ukraine, met with Russian Foreign Minister Sergei Lavrov in London today.
“Escalating talk of sanctions over the Ukraine conflict would give it every reason to move those holdings to an off-shore custodian,” according to Wrightson ICAP, referring to Russia.
The previous biggest drop in Fed custody holdings was $32 billion in June after the central bank indicated they may reduce purchases of Treasuries. Andrea Priest, a spokeswoman for the Fed Bank of New York, declined to comment.
“How much more room it has to go depends on who’s doing the shift,” said Shyam Rajan, rates strategist in New York at Bank of America Corp. “It could just be a shift in where they hold Treasuries as opposed to outright selling. If they had sold we would have been much higher in yields this week. We’ve seen a rally.”
Bank Rossi
A spokeswoman for Russia’s central bank said it hasn’t disclosed changes in its foreign-asset holdings.
“Bank Rossii publishes data on managing foreign-currency assets not earlier than six months after the given period because of the high sensitivity of prices on global financial markets to the actions of largest market participants, including the Russian central bank,” Anna Granik, a spokeswoman for Moscow-based central bank, said in an e-mailed response to questions.
The decrease in custody holdings at the Fed spurred speculation Russia may have moved to raise funds to defend its currency as the turmoil worsens. The ruble has declined 10.3 percent against the dollar this year and reached a record low 36.9 per dollar on March 3. It declined 0.2 percent today to 36.6.
“If they were selling to defend the currency, the market would have felt the impact on yields more substantially,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA.
Central Banks
Central banks at the end of last year may have been adding to their holdings in Europe, such as Belgium’s central bank. Belgium custodial holdings of Treasuries rose by 28 percent in December to $256.8 billion, according to Bloomberg data.
“A lot of people are looking at Belgium,” Keeble said, referring to shifts in foreign reserves.
Foreign holdings of Treasuries totaled a record $5.79 trillion at the end of last year, according to Treasury data released in February. Fed holdings for its own account were $2.2 trillion. The U.S. central bank has begun tapering its monthly purchases of Treasuries to $35 billion as it winds down monetary stimulus that was designed to help foster economic growth.
China, the biggest foreign U.S. creditor, held $1.27 trillion of U.S. government bonds as of December. Japan is the second-largest holder at $1.18 trillion.
The 10-year note posted the biggest weekly gain in almost two years, with the yield dropping as much as 18 basis points. The yield was little changed today at 2.65 percent, according to Bloomberg Bond Trader prices.
“On the margin, it’s a net negative for the Treasury market because it’s a reminder that there’s a potential seller of Treasuries for non-monetary reasons,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “If the market believed they were going to do it, Treasury yields would not be at 2.65 percent.” - Bloomberg.
