World’s Top Financial Firms Exit Russia as Economy Slumps

From Franklin Templeton Investments to BNP Paribas SA, global financial firms that once pushed to expand in Russia are pulling out as prolonged sanctions deepen the country’s first recession since 2009.

Franklin Templeton, which oversees almost $900 billion of assets, is liquidating its fund for the region, while French bank BNP Paribas exited its local fund-management venture and German reinsurer Munich Re closed its Moscow office.

An 18 percent slide in the ruble from this year’s May high, the extension of sanctions linked to the Ukraine conflict and oil trading near a three-month low have compounded Russia’s economic contraction. The dollar-denominated RTS Index has slumped 18 percent from this year’s peak, prompting some portfolio investors to also exit Russian holdings.

“There’s no light at the end of the tunnel,” Simon Fentham-Fletcher, chief investment officer at Freedom Asset Management, said by phone.

BNP Paribas sold its stake in TKB BNP Paribas Investment Partners for an undisclosed sum to a Russian businessman, six years after acquiring it as part of its takeover of Fortis. The St. Petersburg-based company had $3 billion under management in April, according to its website.

‘Normal Management’

Frederic Lemonde-San, a BNP Paribas spokesman in Paris, declined to comment on the Russian sale. The lender, which has a consumer-finance venture with state-run OAO Sberbank, has been in Russia since 1974 and is also involved in corporate and investment banking as well as insurance and car leasing.

Munich Re, the world’s biggest reinsurer, said it will service Russian clients from Munich, according to a statement on July 9.

Capital International, whose parent manages about $1 trillion, sold its stake in Europlan, which leases cars, after holding the investment for a decade. The board of the Franklin Templeton Russia and Eastern European fund agreed last week to liquidate investments worth about $58 million.

“The constraints that we suffer from as a result of these limitations” on investing that have been imposed through sanctions played a role in the fund’s closing, Mark Mobius, chairman of the Templeton Emerging Markets Group, said by phone.

The European Bank of Reconstruction and Development, set up in 1991 to help countries in the former Soviet Union become market economies, is also scaling back. The bank sold its stake in utility Enel Russia and cut its holding in hypermarket chain Lenta Ltd.

“This is normal portfolio management,” Richard Wallis, a Moscow spokesman for the EBRD, said by phone.

‘Getting Out’

The EBRD halted financing in Russia a year ago, following President Vladimir Putin’s annexation of Crimea from Ukraine. Its Russian portfolio has shrunk to 6.3 billion euros ($6.9 billion) from 6.8 billion euros at the start of the year, according to Wallis.

“Some banks are thinking about getting out now and coming back when times are better,” Tom Adshead, chief operating officer at Macro Advisory in Moscow and a former EBRD banker, said by phone.

That’s what Goldman Sachs Group Inc., Nomura Holdings Inc. and others did after Russia defaulted in 1998, triggering a collapse in the equity and bond markets and a devaluation of the ruble. They returned after Putin came to power in 2000 amid a surge in oil prices that fueled an unprecedented expansion.

But those days are long gone. Economists estimate the economy will contract by as much as 4 percent this year. Low oil prices have exacerbated the impact of financing restrictions and other measures the U.S. and its allies have imposed to punish Putin for supporting the uprising in Ukraine.

Foreign investment plunged 70 percent last year to $21 billion, according to the UN Conference on Trade and Development, as companies such as Eni SpA and Gunvor Group Ltd. divested. Gunvor sold a majority stake in the Ust-Luga oil-products terminal to billionaire Andrei Bokarev, capping a series of Russian sales by the Swiss trader.

Portfolio investors continue to drain money from the stock market, with Russian equity funds reporting net outflows for two months in a row, including $35.4 million in the week to July 15, according to Sberbank CIB, citing EPFR Global data.

Fentham-Fletcher said he quit RenAsset Management in Moscow in January to set up Freedom Asset Management with several colleagues to raise money mainly to invest abroad. So far they’ve raised $80 million, mostly from Russian clients.

“Confidence in Russian equities will come back to the fore, but the only opportunities at the moment are in the private sector,” Fentham-Fletcher said.

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