We never cease to be amazed by Russia’s seemingly inexhaustible capacity to surprise us with and ever-expanding univere of horrifying bad news.
Earlier this week, Sberbank released its financial results for the fourth quarter of 2008. Why it took a bank until the second quarter of 2009 to do so is beyond us. Perhaps it is because we lack the requisite level of financial sophistication.
The results the bank revealed — and remember, this institution is owned and operated by the Russian government, it’s the embodiment of the nation’s financial relationship with its citizens — were truly stunning. Its earnings fell 80% — you read that right, eighty percent — dropping to an utterly puny and pathetic $224 million. This happened even though revenues were up significantly owing to massive losses in the bank’s investment portfolio.
And, believe it or not, that’s far from from the worst of it.
The Moscow Times reported:
Chief financial officer Anton Karamzin said in a conference call Monday that the bank’s trading losses were “relatively smaller than at other banks with more speculative portfolios.
Yikes. What does that say about Russia’s other banks?
Still not the worst of it, though. The MT continues:
Provisions for nonperforming loans reached 98 billion rubles from 17.6 billion rubles the previous year, with growth in the fourth quarter alone reaching 40.8 percent. Karamzin said the fourth quarter exposed only the tip of the iceberg for growth in delinquent loans at the bank and the country’s banking sector as a whole. “While the nonperforming loan numbers did not show a significant growth trend in 2008 … they have started to pick up in 2009 as the Russian real sector and our borrowers begin to feel the impact of deteriorating economic conditions,” Karamzin said.
In other words, 80% is penny-ante stuff. You ain’t seen nuthin’ yet. Sberbank hasn’t even begun to feel the impact of its massive portfolio of non-performing loans, defaulted because of the total collapse of the commercial eocnomy. Soon — very soon — Sberbank will begin to experience massive lossses that will force it to dip into the national treasury to cover itself.
But that treasury is already close to empty. Finance Minister Kudrin, as we’ve previously reported, has warned that the budgetary emergency fund will run dry by the end of next year just based on existing liabilities that have nothing to do with Sberbank. Massive budget cuts are planned, as well as gigantic new debt burdens. There is no money lying around to cover Sberbank’s default obligations.
Once again, we see Vladimir Putin’s government standing on the edge of an abyss — a result that was entirely predictable from the moment Russians chose to empower a KGB spy. Putin is hopelessly out of his depth and courting the worst economic disaster Russia has ever experienced — which is really saying something.