NEW YORK (Reuters) – Western sanctions on Moscow could throw the small but lucrative Russian investment banking business that several large U.S. banks have maintained into question, lawyers said, which could deal a hit to tens of millions of dollars in fees.
Major U.S. banks, including JPMorgan Chase & Co, Morgan Stanley and Citigroup Inc, have continued to underwrite and advise on Russian deals, often alongside the investment banking arm of state-owned VTB. VTB Capital is the largest investment bank by fees in Russia.
But U.S. sanctions placed on Thursday on VTB and Sberbank in the wake of Russia’s invasion of Ukraine make the prospect of doing so in the future difficult, lawyers said. That’s only been compounded by the moves to block certain Russian banks’ access to the SWIFT international payment system, announced Saturday.
All the U.S. banks declined comment.
Under the U.S. sanctions, any assets of VTB, including 20 subsidiaries, that touched the U.S financial system would be frozen and U.S. persons would be prohibited from dealing with them.
The sanctions against VTB, which one lawyer said were as severe as those placed against terrorist organizations, would raise new reputation and compliance risks for banks doing business in Russia and make it impossible for U.S. banks to work with VTB on any deals, that lawyer said.
“These are very strong sanctions on the financial system,” said Clay Lowery, executive vice president at the Institute of International Finance, a Washington-based bank group.
One of the lawyers who advises financial institutions said the sanctions were “a brick wall,” and for banks there was now a reputation risk of dealing with Russia, even when it is not one of the sanctioned entities.
Ross Delston, a U.S. lawyer and former banking regulator, said that the moves on SWIFT would result in Russia being viewed as “radioactive” by banks in the U.S. and Europe.
Still, some see a future for U.S. banks in Russia despite the measures.
A source familiar with one U.S. bank in Moscow said that they were working out how to apply the sanctions and recognized there would be an impact on how to conduct investment banking business. But the source added that the bank was not considering pulling out of the country.
A source close to another U.S. bank said that even if VTB could not be in deals such as IPOs or M&A, other banks could replace it – as long as those banks are not also subjected to sanctions. That source said the sanctions were not an insurmountable problem for the international banks, adding that there were other segments of the market and sources of revenue for international banks.
VTB said in a statement on Thursday that sanctions had “been a reality for us over the past few years” and the bank has “had time to learn the lessons and prepare for the most severe scenario.” The bank did not respond to follow up questions.
Investment banking business in Russia has been dwindling since 2014, when the United States sanctioned Moscow for invading Crimea. But U.S. banks managed to retain a toehold in the market.
Russia accounted for 0.27% of the global fee pot last year, including advisory and underwriting fees on mergers and acquisitions, equity and debt capital markets. In 2013, Russia accounted for nearly 1% of the fee pool.
Even so, the number translates to sizeable fees. The investment banking arm of Russia’s No.2 bank, VTB Capital, collected $142.9 million – or a third – of the fees earned in Russia in 2021, Refinitiv data showed.
JPMorgan was second overall with $32.8 million, Morgan Stanley fourth, generating $27.3 million, and Citigroup fifth with $22.8 million, while Goldman Sachs was seventh, generating $19.5 million.
(Reporting by David French and Megan Davies; additional reporting by Pete Schroder; Editing by Paritosh Bansal, Marguerita Choy and Diane Craft)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
