Global banks reveal billions in potential Russia-linked losses
With Russia's economy collapsing, its stock market cryogenically frozen and its bonds near default, global investors are set to endure major losses.
Why it matters: For decades, Russian investments were a cornerstone of so-called "emerging market" investing, the financial world's marketing rubric that helped encourage the free-flowing global investments that helped define the post-Cold War era.
- Russia was a star of the "BRICS" — a rubric coined by Goldman Sachs analysts that stood for the fast-growing emerging market economies that were investor favorites over the last two decades.
- BRICS = Brazil, Russia, India, China, South Africa.
State of play: It's difficult to estimate how widespread the losses might be.
- Goldman analysts estimate that there are roughly $70 billion worth of Russian government bonds held by foreigners.
- A report from the Brookings Institution released last month said there were roughly $200 billion worth of Russian stocks owned by foreigners — including $68 billion in the U.S.
Driving the news: In recent days, major financial players have disclosed — or had the press disclose for them — exposures to such investments that may cause billions in losses in the case of broad-based Russian debt defaults.
- BlackRock, the world's largest asset manager, has lost roughly $17 billion on Russian securities as a result of the invasion, the FT reported on Friday.
- Bond-trading giant Pimco could lose up to $2.6 billion if Russia fails to make its sovereign debt payments, after the asset manager bet big against a default, the FT reports.
- Italy's second largest bank, Unicredit, said it could lose $8 billion if it has to fully write off — that is, value as worthless — its Russia business.
- French banking giant BNP Paribas said it has a combined $3 billion in exposure to Russia and Ukraine.
- Germany's Deutsche Bank is exposed to about $3 billion.
- Credit Suisse acknowledged $1.7 billion in exposure.
Yes, but: More losses are almost sure to come.
- French bank Societe Generale has said that at the end of 2021, it had roughly €18 billion (nearly $20 billion) worth of exposure.
- Last week, Citibank said it had a nearly $10 billion total exposure to Russia.
The intrigue: Those are just the losses we can obviously see coming. But violent market moves triggered by the Russian invasion — and the massive sanctions in response — have generated steep, and more unexpected, losses elsewhere.
- In China, an astounding surge in the price of nickel — in part due to worries about access to supplies from Russia, a top producer of the metal — rocked the empire of Xiang Guangda, the billionaire founder of one of China's largest producers of stainless steel, Tsingshan Holding Group.
Meanwhile: Western corporations will incur losses on foreign direct investments — that is, business investments in Russia — as they rush to exit the market.
- Goldman yesterday become one of the latest to announce plans to to leave the country.
- Russia is considering plans to seize and potentially nationalize assets of the companies that quit the country.
The bottom line: What a mess. The country's economic meltdown — along with its brutal invasion of Ukraine that has put it in a similar box to North Korea — will likely be seen by historians as the end of the most recent chapter of financial globalization.
Editor’s note: This story has been updated to reflect breaking news about BlackRock’s Russia-related losses.