OAO Sberbank, which has lost the most market value among the world’s major lenders this year, fell in New York trading as representatives of the European Union meet to discuss sanctions that may target Russian banks.
American depositary receipts of the country’s biggest bank, which is controlled by the government and holds about half of Russia’s deposits, slumped 3 percent to $8.45 yesterday to extend this year’s plunge to 33 percent. The Bloomberg Russia-US Equity Index of the most-traded Russian shares on U.S. exchanges retreated 1.2 percent to 84.14, heading for the biggest monthly drop since January.
EU ambassadors will meet again today to weigh banning Russia’s state-owned lenders from its capital markets after the U.S. enacted another round of penalties against the former Soviet republic over the fighting in Ukraine. BCS Financial Group cut its price estimate on Sberbank by about 15 percent yesterday, saying reduced international funding and a weaker economy will lead to lower profitability.
“Sberbank is falling on expected sanctions, and market sentiment is increasingly negative,” Anvar Gilyazitdinov, who manages a $10 million portfolio of Russian stocks at Rye, Man & Gor Securities, said by phone from Moscow yesterday. “People are pricing in some frightening scenarios. If there are sanctions on the financial sector, those would hurt the most as they would freeze transactions or make them very difficult. It’s hard to imagine how expensive funding would become.”
Investors have erased $22 billion from Sberbank’s market capitalization this year amid concern sanctions against Russia for its support to separatists in Ukraine will hurt the $2 trillion economy. The loss is the biggest among global banks valued at $25 billion or more, ahead of Dublin-based Allied Irish Banks Plc’s $15 billion reduction in market value, data compiled by Bloomberg show.
Russian state-owned lenders, including VTB Group, Sberbank, OAO Gazprombank and Vnesheconombank, have more debt to repay in euros, dollars and Swiss francs than they do in rubles over the next three years, according to data collated by Bloomberg. They have about $15 billion in dollar, euro and franc-denominated bonds maturing 2015 through 2017, compared with about $9.7 billion in ruble debt.
The new sanctions by the EU are aimed at the Russian finance, defense and energy industries as well as President Vladimir Putin’s “cronies,” Deputy National Security Adviser Tony Blinken said yesterday. U.S. President Barack Obama consulted the leaders of France, Germany, Italy and the U.K. during a video and telephone conference, he said. Separately, EU government representatives yesterday agreed on a list of Putin business associates to be subjected to previously announced asset freezes and travel bans.
The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, fell 1.1 percent to $24.35, the lowest level since May 15. Futures on the dollar-denominated RTS Index increased 0.5 percent to 120,700 in U.S. hours yesterday.
The RTS Volatility Index, which measures expected swings in the futures, slid 1.5 percent to 37.68. The Bloomberg Russia-US gauge is down 9.2 percent this month, the biggest decline since a 12 percent tumble in January. United Co. Rusal, the world’s biggest aluminum producer, slumped 2.2 percent to HK$3.96 at 10:40 a.m. in Hong Kong trading.
BCS, the biggest broker on the Moscow Exchange, reiterated its buy recommendation on Sberbank yesterday even as it cut its 12-month price target to 130 rubles from 153.28 rubles. BCS cut VTB Group, another state-run lender, to sell from hold, citing “weaker economy and tighter markets,” the report said.
Russia’s central bank unexpectedly raised interest rates for a third time this year on July 25 as policy makers step up efforts to stem inflation exacerbated by the Ukrainian standoff. None of the economists surveyed by Bloomberg predicted an increase.
Net capital outflows from Russian assets jumped to $74.6 billion in the first half of 2014, compared with $61 billion in the whole of last year, central bank data show. Outflows may be near $100 billion in 2014, according to the Economy Ministry in Moscow. The government predicts the $2 trillion economy will expand 0.5 percent this year, the slowest since 2009.
Trading volume in Sberbank’s ADR was almost 10 times the 90-day average, data compiled by Bloomberg showed. Its stock in Moscow fell 3.1 percent to 72.82 rubles, or $2.05, yesterday. Each ADR represents four shares. Futures on the stock increased 0.7 percent to 74.13 rubles in the U.S. hours yesterday.
Although Sberbank remains “the most attractive” Russian bank, “geopolitical factors, sanctions and slowing economic growth remain the main risks to the stock,” Andrey Klapko, an analyst at OAO Gazprombank in Moscow who reiterated a buy recommendation on the lender, said by phone yesterday. “The situation is unpredictable.”