Posted on 09/16/2008 4:01:23 PM PDT by Fred
Russian shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.
The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis.
Earlier, trading had been suspended on both the Micex and RTS stock exchanges as investors ignored assurances by Russian officials and a cycle of distrust set in amid liquidity fears.
Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.
The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest lvel since January 2006.
Interbank money market rates climbed to 11 per cent, their highest since a mini-banking crisis in summer 2004.
Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.
Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.
The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.
But market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.
It said: “In connection with the fact that a series of our clients did not meet their obligations to our bank, we have not met our obligations to our counterparties.
“We recognise our responsibility to our counter-parties and to the market and we are working intensively to resolve the situation.”
Andrei Sharonov, managing director of Troika Dialog, a Moscow investment bank, and a former deputy economic minister, said: “This is a vicious circle,” said , .
“It is a situation of total mistrust. The liquidity crisis is being caused by a crisis of confidence in which people are frightened to borrow and frightened to lend.”
Shares in Russia’s biggest state-controlled banks led the slide with Sberbank, the state-controlled savings bank, closing 21.72 per cent down and VTB losing 29.26 per cent. The bank was suffered on investor fears about its securities portfolio, which makes up about 10 per cent of its assets.
Ah, what a shame.
Looks like the Russians will have no choice but to sell their oil to Europe, they are going to need the money.
Huh. Wonder how they’re going to pay for their next invasion.
Starting when Clinton sent Richerson to OPEC to ask them to raise oil prices so russia could charge more and pay off the loans clinton gave them. The economy of russia and the price of the dollar and oil were pretty much tied together. It became an oil based economy screwing the western european countries.
Oil has dropped below 100, their economy is screwed also, their recent activity in Georgia makes trade a problem for them.
At least the market there understands the situation.
This is what happens when you base your entire economy on energy exportation, but due to mismanagement and nationalization policies, your output is rapidly decreasing, rather than increasing. After what Putin and his crew of Kremlin thugs did to BP and Yukos, foreign companies have slowly been pulling all their resources and money out of Russia.
Dear Hugo,
We have decided to donate to Venezuela that part of our navy currently in your waters. Enjoy!
Sincerely,
Vladimir
Foreign investors have been pulling out of Russia since the invasion. Putin wrote a check he can't cover.
the Georgian chickens coming home to roooost...
Unnnnh....Democrat Congress working on a bailout maybe?
Come on Pooty Pute! Say something nice and make it all better. Everyone knows totalitarian governments are so much better than the democratic ones.
The point is it reveals an intimate connection between their shaky stock finances and openness to the west and the west's deep pools of liquid capital. Without that access their markets are disfunctional.
I wonder if this will touch Putin at all ...or his mini-me.
When you’re Putin, you simply raid what’s left of your country’s economy. For all we know, that might entail locking up one or two of Russia’s many billionaires, confiscating all their wealth in the process.
Its hitting him and his KGB billionaire inner circle right in the nads like a judo kick. These are capital destruction type events.
After what Putin and his crew of Kremlin thugs did to BP and Yukos, foreign companies have slowly been pulling all their resources and money out of Russia.===
You are also forgetting about Shell and their Sakhalin disaster, plus all small things that never got much publicity, like scewing SecGe and bunch of other foreign banks on ISDA arrangements back during the days of default, mishaps with Conoco, Mechel, overnight 100% increase of gas prices to end users (Georgia stands to be a good example of that), etc
I’m no economist, BUT...
Wouldn’t this just lead to Russia quickly taking over all of its failed businesses and nationalizing everything and going back to their evil government controlled and sanctioned ways?
Don't they already have that? besides, for them to do this still would require a huge cash call on foreign and pension fund reserves. If they do that and the oil prices continue with the current tendency, they will have no money to pay salaries next year.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.