Russia rushes to shield financial system from barrage of sanctions

BY Georgi Kantchev | UPDATED 03/01/2022 03:41 午後 EST

Stock trading remains halted and Moscow announced new measures to protect the economy

Russia has been scrutinizing the financial wreckage caused by Western sanctions, as its stock market remained closed and the government announced new measures to try to limit damage to the economy.

Sanctions imposed by the United States and European countries in recent days have reduced the access of major Russian banks to the dollar and other reserve currencies and will soon separate some of the lenders from the Swift global payments messaging system.

The West has also prevented Russia’s central bank from using much of its large reserves to protect the economy. Meanwhile, many Western companies, including energy majors BP PLC and Shell PLC, said they would pull out of Russian investments and joint ventures.

On Tuesday, the Russian government announced a temporary ban on foreign investors exiting local assets. It was not immediately clear what the decision entailed and how it would affect Western companies which have already announced they will leave Russia. The move follows a number of retaliatory measures announced by the Kremlin on Monday, including a ban on issuing loans to foreigners by Russian residents and an order for exporters to sell 80% of their foreign currency earnings from exports.

The Kremlin was defiant, saying the sanctions would not change Moscow’s course. “They think that by imposing sanctions they can force us to change our position,” President Vladimir Putin’s spokesman Dmitry Peskov said on Tuesday.

Mr. Peskov spoke of the masses of Russians queuing at ATMs across the country in a frantic race to withdraw cash.

“Unfortunately, it’s an emotional first reaction,” he said. “I just want to wish everyone peace and express my confidence that in fact, after a certain number of days, these emotions will subside.”

Prime Minister Mikhail Mishustin said the government would spend a trillion rubles, or about $9 billion, to buy shares in Russian companies. The central bank more than doubled interest rates on Monday to 20% as an emergency measure.

Large parts of Russia’s financial architecture remained in limbo as officials worked to stabilize the system. Tuesday was also the first day Russians were barred from sending money to bank accounts abroad, an extreme measure to keep suddenly scarce foreign currency in the economy.

Mr Putin on Tuesday signed an executive order banning people from taking more than $10,000 worth of foreign currency in cash out of the country, according to state news wire TASS.

Foreigners associated with “states that carry out hostile actions against Russia” will need Russian government approval to transact securities and real estate and to receive ruble loans. Mr. Putin’s executive order does not specify which states are deemed hostile.

Trading on the Moscow Stock Exchange was again suspended, as was activity on the onshore foreign exchange market. There was only sporadic trading of the ruble in international markets, with most banks refusing to touch Russian assets.

The consequences of Western sanctions have reverberated outside of Russia, where companies that provide vital financial plumbing have pulled the country off the grid.

Russian government bonds disappeared from trading screens after a leading bond platform, Tradeweb, suspended trading in the securities, citing Western sanctions.

The operator of the Euroclear clearing house has prepared to prevent investors from clearing transactions involving ruble-denominated securities. Euroclear’s competitor, the Clearstream unit of Deutsche Börse, said on Monday it would stop settling domestic trades in Russia, accepting the ruble as the settlement currency and settling trades for various Russian-related stocks and bonds. Clearing and settlement is a necessary cog in the trading of securities by ensuring that buyers receive their purchased security and sellers are paid.

The Swift system said on Tuesday it was ready to eject Russian banks targeted by Western sanctions. “We are engaging with these authorities to understand which entities will be subject to these new measures and will disconnect them once we receive the legal instruction to do so,” the organization said.

Western banks have taken steps to disconnect Russian companies and financial companies from international markets. In London, Bank of New York Mellon has resigned as depositary agent for VTB Bank PJSC’s certificates of deposit traded in the UK capital. Germany’s Deutsche Boerse AG said it would suspend trading after markets close on Tuesday for more securities from Russian state-sanctioned or state-backed companies, after suspending more than 15 securities on Monday, including certificates of deposit VTB Bank and Sberbank.

Other banks have decided to stop the functions they provide around the shares of certain Russian companies trading on European stock exchanges, in order to meet an upcoming EU deadline to cease listing or providing services to public entities.

Goldman Sachs Group, Inc. and UBS Group AG have told their clients that they will no longer handle trading in shares of Russian companies listed on Western markets.

Banks, including HSBC Holdings PLC, are freezing correspondent banking services with entities severely sanctioned by the United States. Correspondent banks provide crucial access to global currencies that Russian banks can pass on to businesses to transact or pay suppliers. HSBC holds sterling-denominated accounts in London for VTB and around seven other Russian-registered banks, according to data provider Intelbridge.

Switzerland’s UBS has accounts for VTB and Sberbank, and Credit Suisse supplies Swiss francs or other currencies to about 15 smaller Russian banks, the data shows, including some of those recently sanctioned.

Spokespersons for VTB, Sberbank, HSBC, UBS and Credit Suisse did not immediately respond to requests for comment.

MSCI Inc. has signaled that it may eliminate Russia from widely followed stock indexes. Market valuations by MSCI and competitors such as London Stock Exchange Group PLC’s FTSE Russell unit help determine how investors allocate billions of dollars.

On Monday, Russia’s Central Bank Governor Elvira Nabiullina said the country’s banking sector was experiencing a structural liquidity deficit, meaning there was a shortage of easily accessible money essential to the functioning of the system. financial.

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Don F. Davis