The Parallax Brief

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Unrepentant Subjectivity on Economics, Politics, Defence, Foreign Policy, and Russia

Russian Bank Sector Debt Scare Story Sends Euro Down

The euro lost nearly 1% against the dollar at one stage of trading today after news broke that Russian banks may seek to restructure over USD400 bn in debt (much held in euros) with foreign creditors.

According to Bloomberg, Anatoly Aksakov, Duma deputy and the head of the Association of Russian Banks, told Japanese paper Nikkei that Russian banks may try to restructure debt, leading to speculation that European banks may face heavy losses on their Russian exposure.

The news pushed the euro down at one stage against 12 of the 16 most traded currencies in the world.

The Parallax Brief believes this is nothing more than a storm in a teacup.

Although there are plenty of other reasons to be terrified about European banks, the euro, and the Russian banking system, this isn’t one of them.

First, Russian banks don’t owe USD400 bn between them. This is the approximate figure for all Russian corporates and financial institutions in total. Second, the majority of that debt comes from investment grade companies like Gazprom, TNK-BP and VTB, not from heavily leveraged oligarch projects on the brink of extinction.

Third, it was the European banks which initiated the process, not Russian banks desperate to restructure debt. Finally, the idea of impartial arbitration seems now to have been nothing more than a potentially helpful proposal from the Russian Association of Regional Banks in the event restructering by an individual bank was required, rather than the response to events it was reported as.

It is indicative of just how jittery the market is when it can be spooked by garbled quotes and misunderstood journalism into a micro-run on the euro, but the Parallax Brief expects this to come to nought, and sure enough, Bloomberg’s most recent update (Update 3) of its article on the matter (linked above) is far less sensationalistic in its tone.

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