Russia halts trading after 17% share price fall (Russia Stock Market Crashes)

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.

Another one that I remember hearing about was the Hermitage Capital disaster. Its a next book case of why investors are bailing on Russia. The shakedown scams have become too overwhelming to handle anymore.

This is just one of many examples of what has happened. Basically, the government used the guise of stabalizing Russia's finances to grab control of large swaths of the economy.

Bill Browder, who co-founded Hermitage Capital in 1996 with the late billionaire banker Edmond Safra, would be the first to acknowledge he made a fortune in Russia. While running Hermitage, he became a tenacious promoter of minority shareholder rights in the new Russia, fighting famously fierce battles at Gazprom and UES, Russia's largest electric utility. "I was persistent, but I think other minority investors, foreign or Russian, believed I was a constructive force," he said. Yet Browder evidently made some high-powered enemies as well. He has not been able to get back into the country since his visa was revoked in late 2005, but that was to become the least of his worries. In early 2007 an officer of the Interior Ministry called Hermitage's office in Moscow and - according to transcripts of the conversation provided by Hermitage, which taped the call - hinted that Browder's visa issue might be resolved "depending on how you behave [and] what you provide." Hermitage officials believe this was an effort to elicit a bribe from them. They declined. (The Moscow office of the Russian Interior Ministry declined to comment for this article.) Four months later, a 25-man team from the Interior Ministry raided Hermitage's Moscow office, seeking, the chief investigator said, tax documents related to one of Hermitage Capital's clients. The same day, a unit showed up at the Moscow office of Hermitage's law firm, Firestone Duncan, seeking similar documents. When one of the attorneys objected, witnesses say, he was escorted to a conference room and beaten.

Hermitage's ordeal was just beginning. Investigators soon launched a hunt for its assets at four different banks at which it held accounts in Moscow: Citibank, HSBC, Credit Suisse, and ING. The company then discovered that its ownership of three Russian subsidiaries was wiped off the government's official share registry. The only way that can be done in Russia is to have, among other documents, the original corporate seal. The Interior Ministry, thanks to its raid on Hermitage's law firm, had taken that and all the other documents necessary to effect such a change.

It got worse. After the fact, Hermitage learned that a company it had never heard of, Logos Plus, filed a lawsuit accusing Hermitage of bilking it out of $376 million in a sham transaction involving Gazprom shares. Three lawyers, saying they represented Hermitage, showed up at a St. Petersburg court and essentially admitted guilt. They were impostors - they had nothing to do with Hermitage. But the judge promptly ordered that Logos Plus be paid the $376 million. Hermitage later learned that 15 such claims had been brought across the country, resulting in awards of $1.26 billion to the plaintiffs.

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