Mail.ru Slumps With Sberbank as Sliding Ruble Prompts Downgrades

OAO Sberbank and Mail.ru slid at home and abroad after downgrades triggered by the ruble’s slide highlighted the growing risks facing Russian companies as the economy heads for a recession.

Sberbank, the country’s biggest lender, dropped 4.8 percent to 65.30 rubles by the close in Moscow, the weakest level since October 2011. Mail.ru, which operates Russia’s most popular social network, retreated as much as 8.5 percent to $17.85 per depositary receipt in London, the lowest level since the shares started trading in November 2010.

Russian companies’ earnings are being hurt as a conflict in Ukraine persists and sanctions restrict access to foreign funding, pushing the economy into recession. The ruble has tumbled 39 percent in 2014, the most among its peers, after a slump in crude. Sberbank has cut its yearly profit forecast amid higher loan provisions linked to Ukraine, while Mail.ru lowered its sales projections as revenue from advertising slowed.

“Sharp ruble weakening may still not be fully priced in,” analysts at UBS Group AG including Ulyana Lenvalskaya, said in an e-mailed note. “Share prices may not have corrected enough in the short term yet.”

Mail.ru, controlled by billionaire Alisher Usmanov, was lowered to neutral from buy after UBS factored in the currency’s depreciation since its last review and increased its Russia risk-free rate.

UBS also cut Russian search-engine operator Yandex NV and electronic-payment processor Qiwi Plc to neutral from buy, saying that the ruble-denominated pace of growth in the Internet sector won’t be enough to compensate for the currency’s 26 percent decline this quarter. Yandex dropped as much as 9.1 percent in New York, while Qiwi fell 7.4 percent.

Sberbank Cut

Bank of America Merrill Lynch lowered Sberbank to neutral, citing “negative headwinds” for the banking sector. The main risks facing Russian lenders include the ruble’s slide and potential turbulence among tier-2 banks, analysts including Olga Veselova said in an e-mailed note.

“We expect 2015 to be challenging for Russian banks,” the note said. “Russian state banks’ 3Q14 conference calls made it clear that extra provisioning may not be fully over by the end of 2014.”