EDITORIAL: Russian Banks go the Way of the Dodo

EDITORIAL

Russian Banks go the Way of the Dodo

The latest stunningly bad economic news to come out of Vladimir Putin’s Russia that Sberbank’s profits for the first quarter of this year were a puny $18 million, compared with nearly $1 billion rubles in the first quarter of last year.  You read that right:  Sberbank’s profts are down a whopping 98% compared to the same period last year.  The bank’s shares have lost nearly 15% of their value so far this month.  Likely, you do not need reminding dear reader that this institution is owned and operated by the Russian government itself, and is by far the largest and most stable bank in the country.  If this bank is in this kind of shape, what might be said about the others?

What accounts for the loss of operating profit is simple:  Sberbank is carrying a massive amount of bad debt on its books, and had to allocate a shocking amout of its income to reserves in order to prepare to cover these losses.  Already at a startling 3.5%, the Kremlin itself admits nonperforming loans could reach a gut-busting 12% of total loan portfolios by the end of next year.

At the same time, Russia faces a second major banking crisis.  The Russian Central bank announced last week:  “Despite successive cuts in lending rates carried out by the Bank of Russia between April and June, rates on loans to end borrowers remain high.”  As a result it imposed another significant rate cut hoping to spur lending, a cut which will result in a major loss of value for the Russian ruble or alternatively a frightening plunge in Central Bank FOREX reserves, a whopping $2 billion of which were spent on July 13th alone to halt the ruble’s bloodletting.

Russian investors understand, even if the Russian government doesn’t, that the first tsunami that wiped out the Russian economy, taking three-quarters of the stock market’s value and one-third of the currency’s, had nothing to do with the Russian economy itself, except in the sense the the economy is without diversity and utterly enslaved by the West.  That tidal wave of failure came because demand for Russian oil suddently evaporated as the West’s economy took a nosedive. And it has devasted Russia, creating horrifying levels of inflation and unemployment.

But the worst is yet to come. Russia has its own massive wave of domestic financial mismanagement to deal with, and it has nothing to do with the West. Russians abused common sense the same way Westerners did during the boom times of the last decade as the price of oil skyrocketed, and now they are going to pay a horrible price, much worse than what the West has had to endure because Russia has a one-dimensional economy with no fundamentals comparable to those of the West.  Most of all, it lacks genuine financial experts with experience dealing with a market economy. It is run instead by a clan of KGB spies who simply don’t have a clue.

24 responses to “EDITORIAL: Russian Banks go the Way of the Dodo

  1. Russian Economy, 1991-2009 R.I.P.

  2. And as the cardboard replica of an economy blows over and the ability to provide basic infrastructure maintenance, never mind improvements, and even police and military defence becomes worse than nonexistant, Russia is going to be the source of all sorts of problems in the future. How many conflicts will the UN throw peacekeeping forces into? How many terrorist, criminal and other non-state actors will flit in and out of Central Asia’s dark zone?

    This will not end well.

  3. [Sberbank’s profits for the first quarter of this year were a puny $18 million, compared with nearly $1 billion rubles in the first quarter of last year. You read that right: Sberbank’s profts are down a whopping 98% compared to the same period last year. ]

    Lol, 1 billion rubles = 30 million dollars. Please learn some algebra.

    • Kavkazwatcher

      Dude, learn some discernment and cross-check numbers yourself. Sberbank made over 110 billion rubles in gross profit last year (or $3 billion) so it is entirely feasible that it was indeed $1B in the 1st quarter of last year. It definitely was not $30m. It seems there is a typo – perhaps it should say “… nearly $1 billion in rubles in the first…” simply missing the “in”…

      So – overall the article is extremely correct – and we should all be laughing at you instead.

  4. This is obviously a CIA plot.

  5. Don`t worry about our economy:
    1)The oil price has rebounded from 35 to 70 dollars.
    2)The 200 billion dollar stimulus package that is intended for modernizing the aging infrastructure is yet to kick in.
    3)Western chipmakers and automakers have been bought recently by Russian enterprises in order to transfer technology in line with the countrys strategy to revive and bring to the highest level the IT,Aircraft,Automobile,Consumer,Shipbuilding and every other industry.
    4)Most economists predict a 4% decline in 2009,in 2010 we will grow again.

    Unfortunately for you haters,your countrymen a la Berezovsky,Gussinski and Chodorkovsky will not perticipate in this growth…

    • Somebody has been watching a bit too much Russian television ;) I just love the way that Russians claim that Sberbank “bought” Opel. Really, Sberbank was merely part of a consortium of companies that made a bid on Opel. If the bid is successful, Sberbank will own 27.5%, Magna (who actually brokered the deal) will own 27.5% of shares, GM will keep 35% ownership and the employees will get roughly 10% ownership. However, if we listen to Russians, you would believe that Russia bought Opel ;)

      • Sberbank will own 35%,the most important thing however is that Opel will produce 1,5 million cars in Russia and that the old plants will be modernized…
        The goal is to reduce the imports of foreign made cars to zero…

        • That was the old bid. The revised bid ups Magna’s share to 27.5% and cuts Sberbank’s share down to 27.5%: http://www.theglobeandmail.com/globe-investor/magna-revises-opel-bid/article1225652/.

          As for Opel producing 1.5 million cars, the fact of the matter is that Russia can’t sell the cars it is now producing. Unless the economy improves, this won’t be changing any time soon.

          • Well,OK maybe you are right and the bid was modificated,but my point is:
            1)Russians will hold a significant stake in a car mass producer with a decent brand and
            2)Magna has agreed to modify the car plants of GAZ and produce 1,5 million high quality cars per anno for the Russian market.
            These are 1,5 million cars we will NOT import but build in Russia,employ our people and broaden our industrial base.

            Adding to the industrial value chain,that is critical,Russia has the biggest reserve of industrial commodities(metals,oils),it has the biggest refining capacities of these industrial commodities but a relatively poor variety of manufactured high-tech products.
            Thats why 200 billions have been committed to RD,new technical universities,investing into modernizing the whole palett of manufacturing industries in a publicprivate partnership.
            We will make those industries competetive for the world market,and because of our big and cheap industrial commoditiy reserves we will be able to offer dumping prices on the world market for those end products.
            Take for example the new Sukhoi 100 regional jet,it came out last year and is 30% cheaper than its concurrents on the world market and this is just the beginning

            • And like other “great” Russian aircraft, nobody is buying the Sukhoi due to safety & quality concerns.

              Russian commercial aircraft, and military aircraft for that matter, have appalling safety records.

              The Indians recently grounded their entire fleet of Sukhoi fighters due to safety concerns and criticism of the design by the pilots flying them.

              Morocco returned a delivery of MiG 29’s citing poor manufacture.

              The majority of the Russian Air Forces fleet of MiG 29’s is still grounded due to a design flaw that causes the vertical stabilisers to fall of during flight.

              Then there are the death trap tanks, the missiles that do not work, and don’t forget that people would rather buy a second hand Japanese car than anything made new in Russia.

              Made in Russia = Junk

          • Would anybody like to buy General Motors? You can get it for ten bucks and a glass of lemonade.

        • Atta-boy! Don’t let the facts or reality get in the way of good ol’ patriotism!

  6. That’s the difference between Russian and American banks/fiancial institutions: in Russia banks are seeing lower profits, while USA is totally bankrupt:

    http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4

    March 31 (Bloomberg) — The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

    New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

    • Like most Russian idiots, you simply don’t understand the meaning of the terms you are using. Being in debt for your net worth is hardly unusual, many people buy houses that are several times their net worth and paying them off just fine.

      The difference between Russia and the USA is that in the USA (you’re citing an American news report, idiot) we are able to debate and criticize our leaders and their policies, whilst in Russia you can’t. Often, Russians get killed for doing it.

      Your comments are so ignorant the sound as if they are coming from a drunken child.

    • Yes, keep repeating the mantra that everything is okay in Russia. The fact of the matter is that the Russian government expects most Russian banks to be wiped out in the coming second wave this fall. All, but perhaps a few dozen of the largest banks are likely to swept up in the coming financial tsunami that will likely hit Russia in October or November.

  7. Why do severe infantilism sufferers constantly rely on personal insults as arguments in discussions?

    LA RUSSOPHOBE RESPONDS:

    Gosh, aren’t you the pot calling the kettle black! Nice example there, Mr. Humanist!

    • Considering how much pride the average Russian takes in their ability to insult foreigners and those from former soviet republics in the most vile terms, Phobophobe is a great example of the true Russian hypocrite

      • Assuming that the Putin admirers that post here are Russian is a mistake. There are plenty of little home grown neo-fascists in the West.

        Assuming that they are new faces because the name changed is another mistake.

        • Very true, they (or some of them) very well may be Westerners. In olden days they used to be called “fellow travelers” but I guess nothing ever changes

  8. Rudyard Kipling provides the best description
    of the moscovite psyche and their preocupation
    with their ” greatness ” in his ” Jungle Book “.
    I am specifically refering to his description of
    the Bander Log , the monkey tribe . Just as the
    Bander Log , the moscovites invariably clamor ;
    ” We are the greatest , why ? Because we say
    so ” . Perfect .

    • Oleksandr, but these slogans: “We are great. We are free. We are wonderful. We are the most wonderful people in all the jungle! We all say so, and so it must be true…” are exactly those of the Ukrainian nationalists. They are now producing and selling the Globe of Ukraine and the Map of Ukraine underpants:

      • OK, they are selling these things, so what? Obviously, some people are trying to make a buck, and why not? There are all kinds of novelties items available everywhere, some more tasteful some less. My point is that free people should be able to sell whatever they want and can sell. You don’t like it? Nobody forces you to buy

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