Banking on Russia
We couldn’t help but be amused by the odd juxtaposition of two recent stories about Russia’s leading financial institution, state-owned Sberbank. Bloomberg reported that next year Sberbank’s stock might rise 66%. Meanwhile, Reuters reported that so far this year the banks’s net profits are down a truly breathtaking 92%. 100% is not that far out of reach, it seems.
Let’s do the math. Mr. Smith earns $100 in profit in 2008. The next year, like Sberbank, his profit falls by 92%, so he earns a measely $8. Then, in 2010, his profit increases by 66%. That is, it rises to $13.28. Is he doing well?
Of course, Bloomberg didn’t say Sberbank’s profits would rise 66%, only its stocks. And it was a Russian stock broker who said that, so you can take it with a grain of salt. But even if Sberbank’s profits did go up 66% next year, after dropping 92% this year Sberbank would still be more than 75% behind where it was two years ago. A few speculators stupid enough to bet on Sberbank’s stocks might pocket a few pennies, but meanwhile those who actually put their money in the bank would be losing their shirts, or if not them then the hapless Russian taxpayers who continuously must bail them out.
In our issue today we report more horrifying facts on the imminent collapse of Russia’s banking sector, whose assets continue to deteriorate at an alarming rate. We also carry an essay by economics guru Anders Aslund showing how deep abiding faults in the Russian economy mean a state of permanent financial instability undermines the ruble and imperils the nation.
But the people of Russia ignore it all, and ignore the fact that they aren’t even allowed to know much of it, since state-sponsored TV hides the true facts. As such, the people of Russia richly deserve the fate that awaits them.