Thursday, June 25, 2009

Here Comes Russian Bank Nationalization

You didn't think we could beat the original communists at their own game now, did you.

Monetizing proletarians of the world - unite.

Developing story from FT. Maybe Bernanke can monetize some of Russia's upcoming trillions of bonds for shits and giggles too.
"Russia is considering a banking bail-out that will go further than measures taken by the US, as fears grow that bad loans could paralyse the economy."

Igor Shuvalov, deputy prime minister, will consider taking stakes in troubled banks when a group of experts on the crisis meets on Friday to discuss ways to recapitalise the country’s banking system, according to a draft proposals seen by the Financial Times.

The proposal, one of several under consideration, would see the government issue OFZ treasury bills, a type of bond, to boost the balance sheets of the biggest banks. In return the state would get preferred shares. Unlike the US bank bail-out, the Russian scheme would see the government take board seats and get veto rights at the banks it bails out

Analysts said such a plan could allow banks to declare the true level of bad loans on their balance sheets, which, once cleaned up under the programme, would break the credit squeeze and allow them to start lending again in 2010.

About $100bn (€72bn, £61bn) in domestic loans fall due by the end of the year and the central bank has said banks’ profits would be totally wiped out if non-performing loans hit 10 to 12 per cent. Standard & Poor’s warned last week problem loans could reach as high as 38 per cent.

With inflation, high interest rates, a dearth of new credit and a sharp fall in commodity prices still squeezing companies, bankers say they fear non-performing loans could hit as much as 20 per cent of overall credit portfolios by the end of the year.

International ratings agencies Moodys and S&P have warned that Russia could need to spend as much as $40bn recapitalising the banking system by the end of the year.

Under the draft bill being considered on Friday the prefs would be convertible into ordinary shares in 10 years’ time should the bank be unable to pay back the bond when it matures in 2019. The recapitalisation funds would be limited to the top 55 banks in Russia’s 1,100-strong banking system, analysts said. The draft bill says only banks with a minimum of Rbs50bn ($1.6bn, €1.4bn, £1.0bn) in assets would be eligible.


If the government continues to delay, “this means that many banks will just stop operations. They will continue to exist but they won’t be able to provide new loans,” Ms Orlova said.

The government fears it could spend its entire Rbs4,000bn reserve fund and more, once it begins to recapitalise the private banking sector, she added.

But Yevgeny Gavrilen­kov, chief economist at Troika Dialog, the Moscow investment bank, said it would be best if the government did not attempt to interfere in the problem but concentrated on lowering inflation instead.

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