Russian stocks fall, bank outlook dims

Images (showing 1 of 3 photos)

Russian stocks were buffeted Tuesday by turbulence from a dismal U.S. trading session as the Standard & Poor's ratings agency lowered the long-term outlook for several small-sized Russian banks, including a bank owned one of the country's richest men.

The MICEX, where most trading takes place, dropped 3.1 percent to close at 1,071.2 points, while the dollar-denominated RTS shed 2.9 percent to fall to 1272.1 points.

The fall was sparked over concerns in the United States over the government's $700 billion bailout plan. It reversed a short-lived recovery Monday that followed the Russian government's decision to pump about $120 billion into the banking system and buy shares in some state-controlled companies.

Losses on Russia's markets were partly tempered by upswings in world oil prices, which jumped to $120 on Monday, but dipped Tuesday to around $107. Russia is the world's second-largest oil producer after Saudi Arabia.

But like other major stock markets, Russian markets are also influenced by the U.S. exchanges. Investors in the United States on Monday drove the Dow Jones index of the 30 largest U.S. companies down 3.27 percent and the broader Standard & Poor's 500 index down 3.82 percent.

"When nothing happens in Russia, the Dow becomes the nerve center of the stock markets' movement here," said Maxim Osadchiy, an analyst at Antanta Pioglobal. "The market has its own driver — and it is not in Russia."

Russia's banking and financial sector is already seeing some restructuring as a result of the turmoil.

State-owned Vnesheconombank said Tuesday it had agreed to buy 98 percent of troubled Svyaz Bank for an undisclosed amount, and would also pump in additional financial aid. On Monday billionaire Mikhail Prokhorov said he would buy a 50 percent minus one share in investment banking powerhouse Renaissance Capital for $500 million.

International ratings agencies have begun responding critically to Russian financial tumult. Standard & Poor's said Tuesday it had revised the long-term outlook on seven Russian banks from positive to stable, citing liquidity concerns and ability to refinance.

"We expect these factors to pressure banks' near-term financial performance and financial flexibility, as well as hinder their strategic expansion goals," the agency said in a statement.

Among the banks affected is Soyuz, part of the Basic Element holding company of metals magnate Oleg Deripaska. The holding company said Tuesday it had already transferred money to shore up liquidity at the bank and had increased its capital by $228 million.

Fitch, meanwhile, downgraded Renaissance Capital's individual rating in the wake of the Prokhorov deal.

"(We) view this as a defensive sale at a time of substantial market volatility in Russia and internationally and when pure investment banks like Renaissance Capital have become increasingly exposed to market sentiment and whim," Fitch said.

Russian markets suffered one of their most turbulent weeks last week since the 1998 financial crisis after a severe fall in the price of oil and as investors were forced into selling stock because of margin calls.

MICEX recorded a one-day drop of nearly 20 percent and plunged 25 percent in just three days. Banking stocks faced the biggest declines, as investors fretted over liquidity concerns and potential losses.

The government has increased the number of banks eligible to receive state support to 28 — up from three — but analysts expect to see significant consolidation among the smaller banks with poor access to outside funding and liquidity support.

There are some 1,200 banks registered in Russia.

Russian markets have been among the worst performers among major indexes this year in light of concerns over government interference in private business, and worsening relations with the West over last month's war with Georgia. The benchmark RTS has fallen by 48 percent since its May high.

International watchdog Transparency International said in its Corruption Perceptions Index report released Tuesday that perception of corruption in Russia was at its worst level in eight years.

____

Associated Press Writer Nataliya Vasilyeva contributed to this report

Back To Top

	Kremlin to shore up financial markets	Associated Press	Thu Sep 18	0
	European, Asian markets up on proposed US bailout	Associated Press	Tue Sep 16	0