Russian Bank fails as Russia edges closer to the Financial Abyss

a reply to: noeltrotsky

Unsealed Documents Expose Morgan Stanley Forcing Rating Agencies To Inflate Ratings

Source

And they were so brilliant with Greece, having them on "A" not long before they defaulted.

"It's just conjecture. Giving a credit to a country is nothing more than a guessing game." Jerome Fons . Former Director of Moody's.

Source

Making Russia "junk" would be a joke with all its resources and low debt. They are now even placed below Spain and Italy. It`s just using common sense into what they are up to.

a reply to: BornAgainAlien

I think Russia overestimated it's strength, clearly they are dependent on the rest of the world no matter how many resources they have. They have to rely on exports for income because their people are too poor to buy much.

originally posted by: Dimithae
a reply to: noeltrotsky
But it sounds to me like economic warfare. If another country were doing this to us,it would be war for sure.

It is economic warfare, precipitated by actual warfare when Russia invaded the Ukraine.

This is not the US's doing though, this is Saudi Arabia who brought low the Bear. The US did almost nothing, other than Obama taking the credit.

Russian or rather we have been subjected to such tests throughout our history that even arranged them earlier Egyptian penalty as tickling against sophisticated torture. letter written by Nikolai Bukharin in the London Jewish newspaper "Universal Review". "La Revue universelle" March 1, 1928. - More in 1928 and had just interrupted the process at the time:
 - "Yes, Russia certainly die. Nowhere does not exist and never existed no class of people in any country, whose life would be worse than under the Soviet paradise ... We are doing experiments on the living body of the Soviet people, damn him to hell, it is the same as in dissecting medical student swarm in the carcass of a tramp. Please read carefully both our constitution. In both of them sincerely says that in fact, we are not interested in neither the Soviet Union nor any any part of it. What we are interested in, it is a universal Jewish world revolution, for which we have always sacrificed everything, including ourselves. Here, in Russia, in our country, where we are the absolute masters, we are not afraid of anything. Country, exhausted by wars, pestilence, famine and death, all of which are dangerous, but great for our business means no longer able nor the slightest protest, nor the slightest disturbance, is constantly under the watchful care of our Troops and our army. Often we are surprised that the patience of the people. You can be sure that throughout the Soviet Union there is no family, where one way or another, we would have killed his father, mother, brother, daughter, and raped, too; and son, or other close relatives or friends. And great! Nevertheless, Felix Dzerzhinsky calmly walks in Moscow without any protection, and even at night. When we scolded him for this indiscretion, he just laughed and said, "What? - They would never dare blood of dogs

a reply to: mangust69

Star for adding Russian flavour!

Any credit rating downgrade shouldnt make a huge difference to Russia at all. The large banks will not be holding Russian paper in any of their vehicles that are subject to capital requirements; even slightly above junk the capital they need to hold will preclude them from holding that paper (capital optimisation is a big deal in banking right now). So you're talking about investment vehicles that would hold most of the paper. Any pension funds would probably need to sell off, other funds may see it as a buying opportunity if they had already positioned properly.

All in all, a country such as Russia is very much seen as a risky investment regardless of what the credit agencies say, and it is less than 20 years since the last major Russian default so anybody not pricing that risk in will deserve what they get.

In terms of the Russian economy, Russia is a net exporter and the devaluation of the Ruble will be of a net benefit to the Russian economy as a whole. The Russian government will need to figure out how to cushion the rising import prices with the net revenue they derive from exports, which is probably what they are focusing on.

The main issue is reductions in demand for energy and commodities, as the global economy is not at all strong (a key reason for the low oil prices that hasnt been discussed that much...the supply glut is a result of poor demand, not that supply has increased massively). Commodity prices continue to weaken, and extra production coming on board through really poorly planned investment into steel mills and the like means that commodity prices are not likely to strengthen in the future. This will also mean that countries importing Russian military gear (another big source of income for Russia) may cut back on spending there too. China has a lot of issues: an economy substantially fuelled by increasing debt, prevalent collateral fraud through rehypothecating commodities pledged as collateral and a housing market where underlying demand is based almost entirely on a belief that houses are a good thing to own rather than actual demand for housing. The number of rich Chinese fleeing or looking to flee tells you all you need to know about the state of the Chinese economy.

I think we get to a point where Russia defaults (again) while continuing to reorient its economy away from the West and towards the East. The Russians have been here before, they will bear the pain and come out the other end. It is very much still a developing economy. I think the geopolitical ramifications are greater than the economic ramifications.

a reply to: zvezdar

Well thought out post and appreciate the contribution!

I think the Junk status will be a big problem unlike you...here's why. As foreign reserves get used up the Russian government is going to want to issue bonds. With a Junk status that simply isn't possible from many sources while fringe sources will demand too high rates for a successful bond issue. The economy is sucking government financial support out like crazy right now, due to the sanctions regime and lack of roll over funding. With any renewed pressure on the Ruble the whole economy could literally tank.

This is closer than people might think. Inter bank lending in Russia is already frozen due to prohibitively high rates. There is only one saviour right now, the central bank. If, as I suspect, a significant portion of the declared reserves are tied up and not liquid enough to support the central bank then there is a problem already. The fact the Chinese were already contacted to lend support leads me to believe the central bank can see the end of it's reserves in the near term should problems continue like the past few months.

You are very right about the overall economy being export driven. There will be some winners in the Oligarchs, metals and non oil and gas resource exports. I wouldn't doubt to see Putin regain state control over some of these winners if he intends a long fight against the sanctions and Oil doesn't rebound in price near term.

I can agree the possibility of a Russian default is very real. China is a major wildcard with huge central bank reserves and would likely intervene to stop a full blown default but at a huge price to pay. They don't help for free.

ruble

Currently about 53 to a dollar with the "Asian help"..

The Ruble drop could have been a calculated gambit by the Russian Enterprise?

originally posted by: Cauliflower
ruble
Currently about 5 to a dollar with the "Asian help"..
The Ruble drop could have been a calculated gambit by the Russian Enterprise?

Agreed some Asian help has recovered the Ruble somewhat. Also the holiday season in the West stopped the pressure somewhat.

Interesting thought that the Russians themselves tanked the Ruble. Personally I don't think so. Possibly in the beginning a bit but I can't imagine lately.

a reply to: noeltrotsky

Interesting thought that the Russians themselves tanked the Ruble. Personally I don't think so. Possibly in the beginning a bit but I can't imagine lately.

That is a good point "in the beginning" Russia used some of their US dollar reserves to support the Ruble.
Could have been testing the waters to see how the currency markets would respond. (obviously the sharks smelled blood)
They probably have already made their off shore swaps and are hoping for a Ruble rebound.

Russia estimates they will need to use about 40 billion of the US dollar reserve to roll over some of the national debt.
That still leaves over $200 billion in reserves.

So the West will get to watch Russia implement an austerity program to make up the lost oil revenue?
That will have no effect on the global economy?

a reply to: noeltrotsky

I dont believe the govt itself is very reliant on debt issuance. Outstanding govt debt is around $300bn, for debt to GDP of under 15%. Most of the external debt in Russia is held by corporates, which could be the bigger story. The export surplus generated means that the position of the govt is not as weak as it would be if there were persistent trade deficits (one of the reasons Japan has weakened significantly in recent times).

The central bank will advocate default rather than use up its reserves trying to defend the currency especially if they believe that the currency is under attack from Western interests. International reserves remain over $400bn. They are still increasing their gold reserves. Default is a political decision and the Russians would not hesitate to do so if they calculate that it is the least harmful move and could cause chaos in bond markets. In nations that do not see capital markets as important as we do in the West default is a much simpler decision. Also, the last time Russia defaulted the economy rebounded very quickly because of the strengths of its exports.

There's no reason that they cant embark on their QE programs in the short to medium term, or issue new bonds direct to their investment banks and pension funds. There are avenues other than the ordinary bond markets available (just look at Japan, central bank purchases are greater than issuance at the moment).

Now, the corporate side of things is more interesting. If we keep seeing tit for tat sanctions and retaliation you could get to the point where confiscation of foreign assets is used as a mechanism to almost blackmail foreign debt relief. That would only occur deep into the game, though, and the Russian economy would need to be hit hard first. I personally think that we will see a much broader downturn and Russia is only part of the story. There's no real recovery until debt is brought under control, and we arent even close to that point yet.

EDIT: BTW I should make it clear that I dont discount your view as you have reasons for it and it is thought out, I just happen to have a different view. One of us is probably correct and the politicians will probably decide which it is

originally posted by: noeltrotsky
Agreed some Asian help has recovered the Ruble somewhat. Also the holiday season in the West stopped the pressure somewhat.

As I thought...the holiday season took the pressure off the Ruble. First day back after Christmas and Oil drops and the Ruble gets hammered again.

a reply to: noeltrotsky

It was just the next coordinated attack.

- First talk about Russia its rating going down

- Make media articles talking about how bad it goes with the Russian economy

- Let some politicians jump in it with the same talk

- Downgrade the rating of a few banks

- Lower the oil price

- Attack the Rouble itself

- Hope to gain more momentum with people freaking out

- Let shills go rampant on comment sections all over the internet

Nothing new, same old play which is being done many times before.

The only question will be, are the Russians (and Chinese) going to make the right decisions, if so, they will be able to survive, if not, things will go bad for them.

originally posted by: BornAgainAlien

- Downgrade the rating of a few banks

This isn't downgrading a few banks. S&P are preparing to downgrade Russia. The whole country, including all the paid trolls.

A bunch of banks are going to fail soon anyway without any S&P downgrades. Why the Russian government allowed 800 banks in the economy is beyond stupid. The consolidation is going to be noisy and painful.

a reply to: noeltrotsky

Fitch revises outlook on 20 Russian banks to negative

Source

a reply to: BornAgainAlien

Good info! Probably just the first wave as ratings agencies face a ton of work to catch up to the fast moving issue.

a reply to: noeltrotsky

S&P does domestic index ratings for US housing prices.
They claim the housing price lows in the US occured mid 2012 but if you follow your local cash market statistics closely you will get a better estimate.

There was a news article that claimed Russians are having trouble with US dollar denominated mortgages. Had been costing them 40% more in monthly payments due to the fall of the Ruble. Gave me one of those WTH moments but I looked.

www.propertyshowrooms.com...

a reply to: Cauliflower

Yeah I read about those poor Russians with US $ denominated house mortgages. They saved a couple percent in interest but are now toast and can't pay. Apparently there are up to 100,000 people in that situation. They have social media websites dedicated to the problem. Lots of talk but no firm plans to help them. Might not get any help either.