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Moscow court bans UBS, Credit Suisse from disposal transactions


Russia’s Zenit Bank believes it is at risk of possible losses related to a loan granted in October 2021 in which it participated – but was then blacklisted

A Moscow court has banned the Swiss bank UBS and its acquired Credit Suisse from disposing of shares in their Russian subsidiaries. This is shown by court documents published after a request by the Russian “Zenit Bank”, which fears losses if the Swiss creditors leave Russia, Reuters reported.

Zenit Bank has submitted a statement to the court stating that it believes the Russian subsidiaries of UBS and Credit Suisse are preparing to cease their operations in Russia. This would expose the Russian bank to potential losses related to a loan granted in October 2021.

The Russian bank then joined an agreement to provide a syndicated loan to Luxembourg-based agricultural firm Intergrain, for which Credit Suisse acted as loan agent.

In November 2021, Zenit Bank transferred $20 million to Intergrain. However, after the western sanctions imposed on the bank, “Credit Suisse” has informed it that it will not transfer payments to it related to the loan for “Intergrain”.

Credit Suisse and UBS declined to comment on the matter when asked by Reuters.

Court documents also show that Zenith Bank has filed for interim measures, asking the court to seize funds belonging to Credit Suisse and UBS, as well as prohibit their disposal of shares.

The request of the Russian creditor for confiscation of funds was not satisfied, and the next court session is scheduled for September 14.

Last week, a Moscow court seized assets in Russia of US-based Goldman Sachs, including a 5 percent stake in Children’s World, the country’s largest toy retailer.

Meanwhile, Russia’s ruble has depreciated sharply in recent months, and the country’s central bank has stepped in to try to stem the slide, the Associated Press reports.

So far, the authorities have refrained from acting, as the weakening ruble has benefited the budget. However, a weaker currency also carries the danger of higher prices for ordinary people, and the government is finally stepping in to try to buck the trend.

The Associated Press points out key factors to know about what’s happening to the ruble:

Basic economic factors play a role, but things do not end there. Russia is selling less abroad — mostly reflecting declining oil and natural gas revenues — and importing more. When goods are imported into Russia, people or companies must sell rubles for a foreign currency such as the dollar or euro, and this depresses the ruble.

Russia’s trade surplus (meaning it sells more goods to other countries than it buys) has shrunk, and trade surpluses tend to support national currencies. Russia used to run a large trade surplus due to high oil prices and a collapse in imports after the invasion of Ukraine. However, crude oil prices have fallen this year, and Russia is also finding it harder to sell its oil because of Western sanctions, including price caps on crude oil and petroleum products such as diesel.

“Significantly weaker inflows of foreign currency due to the drop in exports is a key factor” in the depreciation of the ruble, according to the Kyiv School of Economics.

Meanwhile, nearly a year and a half after the war began, Russian imports have begun to recover as the Russians find ways around sanctions. Some trade is diverted through Asian countries that have not joined the sanctions. Importers, on the other hand, find ways to transport goods through neighboring countries such as Armenia, Georgia and Kazakhstan.

At the same time, Russia has increased its defense spending, for example by pouring money into companies that make weapons. Companies have to import parts and raw materials, and some government money finds its way into workers’ pockets, mostly because the country faces a labor shortage. That government spending alone, along with India and China’s willingness to buy Russian oil, is helping the country’s economy perform better than many expected. The International Monetary Fund indicated last month that it forecast the Russian economy to grow by 1.5 percent this year.

A weaker ruble makes inflation worse as it makes imports more expensive. And the ruble’s weakness is increasingly passed on to people through the prices they pay. In the last three months, inflation reached 7.6 percent, despite the central bank’s target level of 4 percent.

Higher interest rates will make it more expensive to get credit and this should limit domestic demand for goods, including imports. So the Russian Central Bank (RBC) is trying to cool the domestic economy to lower inflation. The bank raised its benchmark interest rate from 8.5 percent to 12 percent at an emergency meeting yesterday after the ruble’s depreciation was criticized by a Kremlin economic adviser.

Russia’s exports have shrunk because Western allies boycotted Russian oil and imposed a price cap on its supplies to other countries. Sanctions prevent insurers or logistics companies (most of which are based in Western countries) from working with contracts for Russian oil above $60 a barrel.

The cap and boycott, imposed last year, have forced Russia to sell at a discount and take expensive measures such as buying a fleet of “ghost tankers” that are outside the reach of sanctions. Russia also halted most natural gas sales to Europe, its biggest customer.

Oil revenue shrank 23 percent in the first half of the year, but Moscow still earns 425 million dinars a day from oil sales, according to the Kyiv School of Economics.

However, higher oil prices have recently sent Russian supplies above the price ceiling, the International Energy Agency (IEA) said in its August report.

The resumption of imports shows that Russia is finding ways around sanctions and boycotts. It has become more expensive and difficult, but if someone needs an iPhone or a Western car, they can find one. So the depreciation of the ruble is due to the sanctions, successful efforts to circumvent their effects and Moscow’s military efforts.

“The cheaper ruble partly reflects the consequences of the sanctions, but does not point to an underlying economic crisis,” said Chris Wafer, CEO of Macro Advisory Partners.

In fact, the depreciating ruble has helped the government in some important ways.

A lower exchange rate means more rubles for every dollar Moscow receives from sales of oil and other products. This increases the money the state can spend on defense and social programs aimed at mitigating the effects of the sanctions on the people of Russia.

“What the central bank and the finance ministry have done in the last few months is try to offset the decline in the dollar value of oil receipts with the weaker ruble so that the deficit in the form of spending is contained and more manageable Wafer points out.

Amid sanctions and restrictions on taking money out of the country, the ruble’s exchange rate is largely in the hands of the central bank, which can advise major exporters when to exchange their dollar earnings for Russian rubles.

When the ruble crossed the threshold of 100 rubles per dollar, the Kremlin and the Central Bank drew the line.

“The weakness was planned, but it went too far and they want to turn things back,” added Wafer, who said the ruble will trade in the middle of the 90-ruble-to-the-dollar range in the coming months, roughly where the government wants it.

The inflation caused by the devaluation of the ruble has hit poorer people harder than others because they spend more of their income on basic necessities like food.

Travel abroad – which is mostly enjoyed by a minority of residents of prosperous cities such as Moscow and St Petersburg – is becoming much more expensive due to the weak ruble.

In any case, public outrage has been limited given the measures imposed by the authorities to criticize the military “operation”, including the threat of imprisonment.

Illustrative Photo by Pixabay: https://www.pexels.com/photo/bank-banknotes-bills-business-210705/

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