VTB Group, the state-controlled Russian bank targeted by the latest U.S. sanctions over the Kremlin’s actions in Ukraine, slid to lowest in eight weeks. OAO Sberbank, the country’s largest lender, advanced after being left off the blacklist.
VTB fell as much as 3.8 percent before closing 1.3 percent lower at 3.96 kopeks in Moscow, its lowest since May 5. Sberbank rose 0.7 percent to 73.68 rubles, paring an earlier gain of as much as 3.6 percent.
The sanctions announced yesterday targeted VTB, its Bank of Moscow unit and Russian Agricultural Bank. The penalties prohibit individual U.S. taxpayers from transacting with, providing financing for or otherwise dealing in new debt maturing in more than 90 days or in 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.
International lenders to VTB are waiting for details on European Union sanctions on Russia before deciding to approve a $1.5 billion loan to the bank, three people with knowledge of the matter said yesterday, asking not to be identified as the negotiations are confidential.
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 people. 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.”
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.