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01.10.2008 - MDM Comment: State support; Bank Soyuz

This morning Russian equities and bonds are flat on average, while the ruble is a little stronger vs. the bi-currency basket. Interestingly, Alexei Kudrin, the finance minister, gave a speech at a conference this morning in which he presented a negative outlook on equities. He explained his stance primarily by highlighting the looming US recession and the high correlation between the Russian and US markets. He also said that he does not expect the ruble to strengthen going forward, as he believes oil prices will weaken and that there will be far lower levels of speculative capital inflows. Below we are discussing a couple more stories that we think are worth your attention:


Alexey Ulyukaev, the first deputy chief of the Central Bank of Russia (CBR), today provided more detail on the new measures of support announced by prime minister Vladimir Putin earlier this week. Mr. Ulyukaev said that the CBR will start unsecured lending operations before the end of this year. Unsecured loans to banks will replace the Ministry of Finance's (MinFin) deposit auctions, since by law MinFin needs all cash to return back to the Treasury before the year-end. Loans will have maturity profiles of up to 6 months. Most importantly, a wider group of banks will be eligible to receive these loans than was previously the case with MinFin's deposits (which apply only to institutions rated Ba3/BB- and above). The rating criteria applied by the Central Bank will apparently be more liberal.

The law enabling the CBR to place a USD50 billion deposit with VEB (Vnesheconombank) is expected to be proposed to the Duma as soon as in October. It is expected that VEB will receive the money at LIBOR+100bp and then lend this cash to Russian corporates and banks that fail to find refinancing for their external debts elsewhere. VEB will evaluate applications and price the loans in-house.


Bank Soyuz (B1/B, Bloomberg ticker BSOYUZ), the 32nd largest bank in Russia by balance sheet, is reportedly looking to sell RUB20 bn of car loans (approximately 20% of its total assets), according to Russian business daily Vedomosti. It appears that the bank is experiencing certain liquidity challenges, which were partly due to Soyuz's significant exposure to equities and bonds, as well as the inter-bank market. We hope Soyuz will withstand these liquidity pressures. Support is (and will be) forthcoming from both its shareholder and the regulators. The bank is controlled by Basic Element group, one of Russia's largest industrial conglomerates. Basic Element has announced a new capital injection in Soyuz and is transferring many of its current and deposit accounts from other institutions into its own bank. This news offers nothing that would cause us to fall back from our long held believe that none of Russia's top-50 banks will default on their bonds.

01.10.2008 13:55
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