Sunday, December 28, 2014

Russia Debt One Grade Above Junk With Downgrades Coming, How Likely is Default?

Mike Shedlock | Dec 28, 2014

All three rating agencies are expected to downgrade Russia's debt to junk soon and bailouts to Russian banks are on the rise, but how likely is default?

The Financial Times reports ...

Russia trebled the size of its bailout of troubled lender Trust Bank to Rbs99bn ($1.9bn) on Friday, laying bare the growing financial fallout from its currency crisis and the slump in the price of oil, its main export.

The rapidly rising cost makes the rescue of Trust bank, which foundered as the rouble collapsed early last week, the second-largest seen in Russia. It has now consumed a tenth of the money earmarked by the government last week for bank bailouts.

The authorities also said they would spend Rbs320bn ($5.9bn) propping up two other banks. Anton Siluanov, finance minister, said state-owned VTB, the second-largest lender by assets, could receive Rbs100bn before the end of this year and another Rbs150bn in 2015, while Gazprombank could be allocated Rbs70bn.

Trust Bank was the first financial institution to fall victim to the currency crisis as it suffered a run on deposits by customers panicked by the steep drop in the rouble’s value, which at one point on December 16 plummeted to an all-time low of 80 against the dollar.

The central bank said that the state-run Deposit Insurance Agency would provide Trust Bank with up to Rbs99bn. It would give an additional Rbs28bn loan to Bank Otkritie, one of Russia’s largest private lenders, to restructure Trust Bank, with the two then merging by the end of 2020.

Foreign Reserves

Although US and EU sanctions make it difficult for Russian companies to obtain financing, and although the Russian banking system is a mess, sovereign default will only occur if Russia cannot meet its foreign debt obligations.  Russia has about $4000 billion in foreign currency reserves, lowest since 2009, but foreign currency obligations for 2015 total about $120 billion.   On that score, the immediate risk seems slim. In fact, one has to wonder if the impending downgrade to junk is politically motivated.  Regardless, the US severely underestimates the fallout, especially to Europe, should default occur.  Sanctions are economic madness and Obama's claim they are working is preposterous. For further discussion, please see Russia Under Attack: Letter from CEO of Genoil to CEO of JPMorgan Chase on US Foreign Policy Blowback

This Appeared Here....... 

My Take - I know I'm going to surprise a whole bunch of people, but I don't know how this ends up being Obama's fault? Everyone demanded he do something and then complained when he didn't start a war. Well, somehow I think that starting a war with Russia isn't such a good thing. So if that's the case - just how many options did anyone think he had? In this case sanctions were all that was left, otherwise everyone had to take their toys and go home and be quiet. No one's forcing Putin to be stupid. That's his choice.

Some weeks back I commented that all the saber rattling everyone is so concerned about is nothing more than a big show by Putin to make him look strong, when in reality he's a typical arrogant economic idiot, just like Stalin, Lenin, Castro and the rest, and with the weakness that comes with going broke.  That leaves bluster and bluff, at which the Soviets excelled, especially when dealing with men like FDR and JFK.  

He destroyed Russia's opportunity to become an economic powerhouse. He and all those corrupt ex-security agents and their allies basically stole all the worthwhile businesses in the nation.  Eventually the only thing Russia had left as a economic base was energy, and those prices are collapsing as I'm writing.  He's broke, he's scared, he's clueless and his real concern is not whether or not he can hold power. I'm willing to bet his real concern is his own safety. Let's face it - he's surrounded by men as equally immoral as he.

Let’s get a little clarity here.  This economic problem in Russia is not the fault of the West, nor is it Obama’s.  It’s Putin’s fault!  No one forced him to attack Ukraine and occupy the Crimea.  Putin attacked Georgia , threatens Azerbaijan and stirs up animosity between them and Armenia , puts economic pressure on Kazakhstan and Belarus and uses his influence in Belarus for military action against Ukraine,  and has been privately threatening to invade Poland, Romania and the Baltic states.  And just who is it in the West that's responsible for all of this imperialism by Putin?

If Russia defaults I think it’s a wonderful thing.  I have a great deal of sympathy for the Russian people who will undoubtedly suffer, but as an entomologist once said, “There’s nothing like a good epidemic to get things started”.   If Russians have any hope of fixing their nation it will take a major economic downturn to dig these thoroughly corrupt people out from their positions of power.  As for the economy in the EU if Russia collapses economically – this will be a good opportunity to re-evaluate their own economic system and start to dump so many of the stupid policies they’ve adopted – including their idiotic green initiatives, especially involving energy.  Economic collapse is the beginning of wisdom for those living under the boot heel of socialism!

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