EDITORIAL: Sberbank (and everything else) in Freefall

Sberbank's share price is in freefall

Sberbank's share price is in freefall

EDITORIAL

Sberbank (and everything else) in Freefall

Last Monday, shares in Russia’s leading financial institution, Sberbank, lost 9% of their value on the RTS dollar-denominated exchange.  On Tuesday the bloodletting continued, and the mighty bank’s shares plummeted an additional 8%.  By midday on Wednesday, another 3% had been forfeit, so that by midweek the institution’s investors had lost one-fifth of the value they owned before the week began.  In the second half of the day on Wednesday the bank clawed back the morning losses and closed with a small gain, but on Thursday it plunged again, this time over 6%, leaving  it down well over 20% for the week.  Things got worse on Friday, as the bank bookended its week by losing another 9% of its share value.  The shares now trade at 45 cents each.

That right:  In just one week shareholders in Russia’s largest and most potent financial institution, funded and run directly by the Kremlin, lost nearly one third of their equity.

As the chart above indicates (though it doesn’t even include the the gigantic amount of ground lost in January), the bank’s stock has fallen back to the level of value it had in 2004, wiping out every penny of investor gain since then.  Those who purchased the bank’s equity as a “blue chip” hedge against calamity have been sore disappointed. Those who bought and held in August 2007 have been wiped out. The stock is plummetting in freefall towards a zero valuation as the ruble tumbles and Russians find their banking system less and less attractive, knowing that it depends for its survival on Kremlin largesse which will soon dry up as the price of oil bottoms out.

The broader RTS market started the week close to a 600 valuation, and closed Friday having for the first time crashed through the critical 500-point psychological barrier to finish the week at 498.  It was down a whopping 16% on the week.  The RTS-2 index, which excludes the most famous firms, closed even lower — at 463.

Meanwhile, the ruble plunged to 33:1 against the dollar, a loss of one-third its summer value, and the Kremlin was forced to announce that it had so depleted its reserves that it could no longer afford to defend the currency, and would allow it to fall as far as 41:1, which would amount to the currency losing half its value in six months.  In a truly breathtaking irony, though the government made the announcement because it wanted the ruble to slide much more quickly, the ruble stubbornly refused to budge further.  Russians selling big-ticket items like real estate and automobiles are now going back to the old (and hilarious) practice of publishing prices in “conditional units” rather than in rubles.

And the government finally admitted that Russia is in a recession, predicting a overall contraction of 0.2% in 2009.  It also predicted a stunning 5.7% contraction in industrial production and a whopping 13% inflation rate.  It predicted a price of oil 25% lower than its original budgetary forecast for 2009 and a ruble value 15% lower than its original forecast. It predicts that the value of Russian exports will plunge by more than 40% compared to 2008.

Yet despite all this abject failure, in the most recent national polling Russians still favored their KGB spy dictator with over 80% approval. One must wonder what Putin would have to do in order to drop down to a mere 60% or so.

2 responses to “EDITORIAL: Sberbank (and everything else) in Freefall

  1. The Russian folk are mostly dumb and listen to what the boob tube tells them. Mostly the Idiot box tells them that the US is the source of their problems and therefore, Dictator Putin is still in favor in their dumb little minds.

  2. Not to mention Saakashvili, who is their # 1 enemy and land grabs in Abkhazia and Tskhinvali region

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