Friday, July 3, 2009

Russia's Imploding Banks?

Ambrose Evans-Pritchard is viewing a recent Fitch rating comment about Russia in the most negative light.

Fitch says that banks will need to raise $60 billion in fresh capital if the “pessimistic scenario” unfolds. True.Bad loans could reach 40%, although analysts are flying blind since bank disclosure “does not always capture all asset quality problems.”

But a $60billion raise shouldn't be that difficult. Russia has been quite willing to follow the U.S. model of intervening in the banking sector. Thus, $60 billion becomes a modest figure set against Russia’s $400 billion foreign reserves.

Further, as if to prove they will mimic U.S. rescue madness, Russia is drawing up plans to recapitalise banks by swapping state debt for preference shares. Other than copying U.S. nuttiness, this last move does nothing.

Bottom line: Russia can prop up its banks on a short-term basis. On a long-term basis, Russia needs higher oil and metals prices to keep its economy together, as long as it maintains its present interventionist structure.

1 comment:

  1. The main difference between Russia and the US is probably that if the government doesn't agree with what wealthy bankers do with the bailout money - they don't complain in the media. They shoot them.