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Industry roundup: 14 March

IMF Chief rules out global financial crisis in case of Russian default on debts

Kristalina Georgieva, the managing director of the International Monetary Fund, stated on CBS’s “Face the Nation” programme that Russia may default on its debts in the wake of unprecedented sanctions over its invasion of Ukraine, but that would not trigger a global financial crisis.

“The impact of the sanctions is quite severe for the Russian economy. We expect a deep recession in Russia, and this abrupt contraction is affecting already how the Russian population is taking the heat on them,” she added.

Georgieva told CBS, “In terms of servicing debt obligations, I can say that we no longer think of Russian default as an improbable event. Russia has the money to service its debt, but cannot access it. What I’m more concerned about is that there are consequences that go beyond Ukraine and Russia.”

Asked whether such a default could trigger a financial crisis around the world, she commented, “For now, no.”

“The total exposure of banks to Russia amounts to around US $120 billion, an amount not negligent, but definitely not systematically relevant,” Georgieva said.

The IMF is concerned about countries that will be hit hard by the surge in wheat and other commodity prices. “War in Ukraine also has social implications for many, many countries,” observed Georgieva, citing rising energy, grain and metal prices.

This is likely to most hurt countries in Russia’s sphere of influence, such as Central Asia and the Caucasus; countries that are more dependent on energy imports from Russia; and countries that have yet to recover from the COVID-induced economic crisis, she believes.

The UK's Chancellor of the Exchequer urges UK firms to stop investing in Russia

UK Chancellor of the Exchequer, Rishi Sunak, has called on UK companies to “think very carefully” about their investments in Russia and how that may aid the Vladimir Putin regime.

Rishi Sunak warned there is “no case for new investment in Russia” and said that “We must collectively go further in our mission to inflict maximum economic pain – and to stop further bloodshed.” He welcomed commitments from firms such as BP, Shell, Aviva, M&G and Vanguard, who have announced their intention to divest away from Russian assets in recent days after the country’s invasion of Ukraine, and he urged more UK businesses to consider joining them.

The Chancellor and Economic Secretary met with business leaders last week to discuss UK investment in Russia – and welcomed the consensus on the need to economically isolate Putin and his regime. Rishi Sunak’s call is part of the UK government’s strategy to hold Putin to account and to send a clear message that the invasion will come at a huge economic cost to Russia.

“The government recognises that some firms may find winding down their positions is a long-term process, given market conditions and the ability to sell assets due to the global sanctions placed on the Russian economy. However, the Chancellor has been clear about the value of the strong signal of intent made by many firms to date, and said the government would do all it could to stand behind and support businesses who want to divest,” the HM Treasury commented.

BlackRock suffers $17bn in losses due to Russia-Ukraine conflict

BlackRock, the world's largest asset manager, has taken a US $17 billion hit on its Russian securities holdings because of Russia’s invasion of Ukraine, the Financial Times (FT) reported on Friday.

BlackRock held more than $18.2 billion in Russian securities assets for clients at the end of January, the firm said, but their value had slumped to about $1 billion on February 28th, when closed markets and severe economic sanctions imposed on Russia after its attack on Ukraine made most of the $18.2 billion in Russian securities holdings unsaleable, leading BlackRock to mark down the value of its investments drastically.

In a LinkedIn post after the markdowns, chairman and CEO Larry Fink wrote that BlackRock was suspending all purchases of Russian securities in its active and index funds in light of the situation.

“This has been a highly complex and fluid situation, and BlackRock will continue actively consulting with regulators, index providers and other market participants to help ensure our clients can exit their positions in Russian securities, whenever and wherever regulatory and market conditions allow,” remarked Larry Fink in the LinkedIn post.

International banks are owed more than $121 billion by Russian entities, according to data from the Bank for International Settlements. Banks have started pulling out of Russia, knowing they may never see those funds again.

If Ukraine-Russia negotiations bring about a resolution, and sanctions ease, then Russian securities could start trading more freely again and recover some of their value, the FT said.

Deutsche Bank report warns of fallout from Russia’s SWIFT ban

Germany’s biggest lender, Deutsche Bank, published a research report on Friday warning that disconnecting Russia from SWIFT will "complicate trade and amplify jitters.”

The report’s author, Marion Laboure, observed that the SWIFT ban could "precipitate the expansion of rival messaging networks and payment methods that circumvent sanctions.”

“In the long run a danger may lurk – countries displeased with Western allies flexing their financial hegemony may club together to set up a rival system with infrastructure they can control.”

The report came just days after Deutsche Bank had declined to follow the likes of Goldman Sachs and JPMorgan Chase in exiting Russia. The German multinational bank’s decision not to close its Russian business hinged on the bank’s duty of care to its clients in the country.

Deutsche Bank tweeted a link to the independent research report, before later deleting it.

On Friday, the bank reversed its course on Russia after facing stringent criticism from some investors and announced that it will shut down its business in Russia.

"As we have repeatedly said, we condemn the Russian invasion of Ukraine in the strongest possible terms and support the German government and its allies in defending our democracy and freedom," Deutsche Bank noted in its statement.

Commerzbank is winding down Russia business

Commerzbank AG, Germany’s second-largest bank, has stopped doing new business in Russia and is winding down existing transactions.

Commerzbank is joining its German rival, Deutsche Bank AG, in pulling back from business in Russia following the country’s invasion of Ukraine. The bank said that its exposure to both Russia and Ukraine were manageable and had been reduced in recent years. However, it would “continuously adapt” its strategy and risk assessment as events unfold.

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