EDITORIAL: Banking on Russia

EDITORIAL

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.

7 responses to “EDITORIAL: Banking on Russia

  1. If you read Reuters article, as opposed to only title & first few words, it says that all of the profits were consumed by bad loans.
    I can remind you of other banks and companies that lost some of their profits due to bad loans (because of chronic mismanagement by Putin, no doubt) – Merril Lynch, Lehman Brothers, AIG, Fannie Mae, Freddie Mac, and WaMu, not counting the ones US administration heroically saved from Putin’s onslaught by bailing them out.
    Among other collapsing economies mismanaged by Putin, are, for example, Iceland and Latvia.
    We should stop Putin before he destroys entire world economy!

  2. I would like to draw your attention to a scary fact. Ms. Merkel, our Chancellor , who has been praised for her sober approach towards Russia, now seems to change her mind in order to “save jobs” in Germany with the “help” of Russian money.

    1) She has pushed GM to sell German car manufacturer Opel to “Austrian-Canadian” Magna group and not to “American locusts”. One of the owners of Magna is – Sberbank. Now the German Government wants the EU to grant a lot of money to new Opel. Famous German journalist Stefan Aust has called this “subsidies for the Russian car industry”.

    2) Merkel has promoted the takeover of the German Wadan Shipyards by Igor Yusufov, former Russian Minister of Energy. Merkel hopes that Yusufov will save the manufacturer which has been lead into troubles by – another Russian, the criminal business man Andrey Burlakov.

    The reason for Merkels new flirt with Russian business: We have federal elections on Sept 27 and Merkel wants to give the impression that the preservation of jobs in Germany is her No 1 priority. Once she is reelected it doesn’t matter if the Russian businessmen destroy the companies they were going to “save”.

    • True, Russians do own a part of Magna. To be precise, they own 20%: “Deripaska is the Russian aluminum magnate with ties to his country’s highest political circles who became co-owner of Magna this year through a $1.5 billion investment by his company, Russian Machines. The investment is worth about 20 per cent of the value of Aurora-based Magna, which last year booked sales of $24.2 billion (U.S.).” Source: http://www.thestar.com/Business/article/275863.

  3. As it is well known to expand PE multiples in RUS you kill the earnings rather than cut costs. Sberbank has never been more expensive and close to loss makin since ..1996-97

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