Sberbank ADRs Drop as EU Measures Hit State-Owned Lenders

OAO Sberbank fell in New York yesterday, capping its biggest monthly drop in two years, as the European Union banned the state-controlled lender from selling bonds or shares in the 28-nation bloc.

American depositary receipts of Russia’s biggest bank, which holds about half of the country’s deposits, slumped 2 percent to $8.28 in New York. Sberbank tumbled 19 percent in July, the steepest drop since May 2012. The Market Vectors Russia ETF, the largest U.S. exchange-traded fund tracking the nation’s companies, slid 8.7 percent in the month, the most since January. Futures in the dollar-denominated RTS index lost 0.5 percent to 120,350 in U.S. hours yesterday.

The EU, Russia’s major trading partner, joined the U.S. in hardening its stance against President Vladimir Putin’s support for separatists in Ukraine. The rising tension has spurred a $21.9 billion reduction in Sberbank’s market capitalization this year, data compiled by Bloomberg show. Even before the latest measures, the Russian government expected the $2 trillion economy to expand at the slowest pace since 2009.

“What is next? There is zero predictability,” Alexander Antipov, the head of sales at Veles Capital LLC in Moscow, said by phone. “Sanctions are already bad, but some experts believe their full impact on the economy won’t be seen until 2015. The worst is yet to come.”

Futures contracts on Sberbank’s Moscow-listed stock slipped 0.8 percent to 73.50 rubles in U.S. hours yesterday, after shares decreased 0.1 percent to 73.60 rubles during regular trading. The EU announced the punitive measures after Russian markets closed. Trading volume in Sberbank’s ADR in New York was more than 5 times the 90-day average, data compiled by Bloomberg showed.

Market Value

Sberbank said in a statement yesterday it has “all the necessary resources to continue operating successfully under the circumstances.” It pledged to “fulfill all of its obligations before the clients in full.”

“Inclusion of Sberbank of Russia, which has no relation to the geopolitical processes, to the sanctions list destroys the basis of the global financial system and does not contribute to the resolution of the European crisis linked to the situation in Ukraine,” the lender’s press service said in the statement.

The bank’s market capitalization loss this year is the biggest among global lenders 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.

National Pride

Sberbank, OAO VTB Bank and OAO Gazprombank, Russia’s three largest lenders, were among the institutions targeted in the latest round of punitive trade measures.

“The economic outlook is darkening but the key question is, how long the Russian leadership intends to prolong the conflict,” Gary Greenberg, an emerging-markets money manager who helps oversee 26.9 billion pounds ($45 billion) at Hermes Fund Managers Ltd., said by e-mail from London. “It looks like the economy is being sacrificed in favor of national pride.”

Russia’s economy is forecast to grow 0.5 percent this year, the slowest pace since a contraction in 2009, according to a Bloomberg survey. 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.

Global depositary receipts of OAO VTB Bank fell 1.5 percent to $2.197 in London yesterday, the lowest level since May. The GDRs lost 10 percent in July. United Co. Rusal, the world’s biggest aluminum producer, dropped 0.5 percent to HK$4.12 at 10:44 a.m. in Hong Kong trading. The stock closed at a 15-month high yesterday.

Capital Outflows

The Bloomberg Russia-US Equity Index slipped 1.2 percent yesterday to 83.56, extending its July plunge to 9.9 percent. The RTS Volatility Index, which measures expected swings in futures, surged 5.3 percent to 38.32. The Market Vectors ETF dropped 1.8 percent to $24.03.

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.

“There are channels, like China, Cuba, North Korea, Iran, maybe India, most which might happily disregard the EU and US sanctions, but financing the Russian economy is becoming increasingly difficult,” Hermes’s Greenberg said.

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