Russia’s VTB Falls Most in Week After U.S. Sanctions

VTB Group, sanctioned by the U.S. over the Kremlin’s actions in Ukraine, fell the most in a week, while OAO Sberbank, Russia’s largest lender, advanced after being left off the blacklist.

The stock fell as much as 3.8 percent, the biggest intraday decline since July 24, and traded down 0.9 percent at 3.976 kopeks by 1:49 p.m. in Moscow. Sberbank rose 2.8 percent to 75.23 rubles, the highest this week.

The new sanctions announced yesterday targeted VTB, its Bank of Moscow unit and Russian Agricultural Bank. The penalties prohibit U.S. persons from transacting with, providing financing for or otherwise dealing in new debt of longer than 90 days maturity or new equity with the state-controlled banks, the U.S. Treasury Department said.

“VTB in particular will suffer, both in terms of external funding opportunities and sentiment toward the stock,” Sberbank investment research analysts led by Andrew Keeley said in an e-mailed report. “We would expect the central bank to provide full-fledged support to the affected banks.”

The European Union yesterday prohibited Russian state-controlled banks from selling shares or bonds in the world’s main capital markets. The bloc is set to publish its sanctions against three entities and eight people later today.

“We are confident that we will continue to be able to attract funds as and when needed,” VTB said today in a statement.

Funding Substitution

With foreign debt closed to Russian lenders, the restrictions make UralSib Financial Corp. question whether the lenders’ current dollar and euro funding can be substituted by ruble or other financing.

“VTB appears to be more exposed with a share of close to 40 percent of its wholesale funding in interest-bearing liabilities compared to about 20 percent for Sberbank,” Natalia Berezina, a banking analyst at UralSib in Moscow, wrote in an e-mailed report today.

VTB Capital, the group’s investment banking unit, has the biggest presence in London with about 500 personnel. Sberbank CIB has a much smaller presence in the U.K.

“I don’t think the Russian state brokers will close in London but we should see a slowdown,” Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory and former chief strategist at Sberbank CIB, said in an interview. “There will be a pullback until we see what the sanctions mean and conservative pension funds and investors will be under pressure to suspend trade until there is clarity.”

Banking ‘Nervousness’

Closely held lender Alfa Bank said “nervousness in the Russian banking sector” should spur demand from the Russian central bank to intervene.

The central bank said it will take “adequate” measures to support banks on U.S. and EU sanctions lists. Russian lenders are working as usual and providing all services, including card transactions, according to a website statement.

“We no longer exclude the possibility of another rate hike,” Alfa Bank Chief Economist Natalia Orlova wrote in an e-mailed report.

The central bank unexpectedly increased borrowing costs for a third time this year on July 25 as the intensifying conflict over Ukraine and the threat of wider sanctions squeeze the economy and undercut the ruble.

Russia’s $2 trillion economy will expand 0.5 percent this year, the government predicts, the slowest pace since a 2009 contraction. Sanctions are having a “serious indirect influence” on the economy, Deputy Finance Minister Sergey Storchak said July 8.

To contact the reporters on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Torrey Clark, Steve Bailey

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