In the case of sanctions of the USA concerning Federal loan bonds we can expect a mass dumping of bonds by non-resident entities, as well as Russian banks, subsidiaries of Western "motherboard". Its volume may exceed 2 trillion rubles.
A strategic game called "Besieged fortress" played by Russia and the United States, is developing according to the laws of their inner drama. From the outside it resembles a contest of two engineering "minds": one "mind" invents a more perfect and invulnerable armor, the second exercises the wit in the invention of new armor-piercing shells that can burn the opponent like a piece of paper. While Ukraine is eagerly awaiting delivery of the American "javelin" financial "javelin" from the state Department is on the way.
Unfortunately, unlike the army's anti-tank missiles financial weapon has no options: "fire and forget". More precisely, this "button" is, but only in the case of disconnection of Russian banks from the international settlement system SWIFT and freeze assets of the Russian Federation, including the reserves of the Central Bank in the Western financial institutions. But the activation of her soon to be expected: since we have started the "gun" comparison, a similar sanctions package could be compared with the use of nuclear weapons in modern warfare. In his time likewise was punished only Iran after the seizure of the U.S. Embassy and the Islamic revolution. Against Russia, the Americans prefer not to act so radically. And we are not talking about invented Facebook tactics slow strangulation of Russians called "Anaconda", and a deliberate U.S. policy to prevent Russia in the club of world States which possess weapons of the fifth to the sixth generation. For this it is necessary to impose on the Russians the local arms race in terms of destruction of the existing economic system. "To stifle" the country with the largest nuclear potential, no one is going simply because in the world there is no such anacondas, which could digest a similar "prey" without the risk of getting "indigestion"...
That is why the sight of a new us sanctions — the government bond market of Russia and the ruble as a derivative of it. In "Overview of risks of financial markets", published by the Central Bank of the Russian Federation, sounded a curious phrase: "the U.S. Treasury will consider the imposition of restrictions on investments in OFZ until February 2018." A similar statement was made by Treasury Secretary Stephen Mnuchin, who said: "We are absolutely sure the sanctions (against Russia. — ed.)". And it was hinted that the extension of the sanctions package can be carried out precisely due to its distribution on the public debt of the Federation.
Let's say the U.S. does decide to use this tool of pressure. How will this affect the financial system of Russia? Theoretically Americans can prohibit its companies and banks to buy Federal bonds (the point of the sanctions aimed at the OFZ market). And threatened measures sanctions impact companies and banks from other countries. In other words: if you want to interact with the financial sector of the United States, go to the market for Russian state bonds.
In this case, a non-resident company is likely to start a massive sale of its OFZ portfolio and the corresponding scale withdrawal of capital from Russia. These actions will be the starting point a fairly simple cause-and-effect relationships.
Chain first: reset non-resident portfolio — repatriation of capital abroad — the ruble devaluation. Here everything is clear: for the withdrawal of capital of non-residents will require tens of billions of dollars, and on a limited time period (winter-spring 2018).
Chain second: reset non-resident portfolio — the increase of yield of OFZ — shift up all basic rates — the crisis of capital adequacy of banks (commercial and state). This causal relationship will examine in more detail.
As you can see, the bifurcation point, which may switch the mode of functioning of the Russian financial system from "stable" to level "pre-crisis", is the sale of a non-resident owned government bonds. At the moment it remains only to push them to such a decision, especially that the existence of mere rumors of new sanctions has already prompted a mild panic among investors.
Such a blow will be aimed primarily at the destruction of macro-financial stability, which was achieved by the Central Bank of the Russian Federation over the last year. As you know, the Board of Directors of the Bank of Russia on 15 December 2017 has decided to reduce the key rate from 8.25 to 7.75% per annum. Controlled index inflation is at 2.5%, while underlying inflation target for the current year of 4%. For comparison, in Ukraine the discount rate was increased to 14.5%, inflation will be approximately 14.5% with a price target of 8%...
The aggregate nominal value of OFZ in circulation on the secondary market in the first half of 2017, amounted to 6.16 trillion roubles, of which 1.8 trillion rubles., or 30.7 percent, belongs to non-residents. This type of bond is issued by the Ministry of Finance and included in the Lombard list, ie banks, buying OFZ can transfer them as collateral to the Central Bank and to them under the refinancing.
Moreover, 30 Russian banks that have experienced a crisis of capital received from the state Agency on insurance of contributions (ASV) special subordinated debt in the form of a package OFZ. With this infusion, the banks were able to meet the recapitalization program prescribed for them by the regulator. Instead of banks, which increased with the help of state bonds, private capital has committed to lend to the real sector at reduced interest rates: the level of the financial margin, which is calculated as the difference between the yield of OFZ made in their liabilities and interest rate on loans (assets). In this context, it is appropriate to remember that our NBU and the Deposit guarantee Fund, unfortunately, has not applied a similar scheme to rescue banks in Ukraine.
Thus, in the case of sanctions of the USA concerning the OFZ market we can expect a mass dumping of bonds by non-resident entities, as well as Russian banks, subsidiaries of Western "motherboard". The volume of such discharge may exceed 2 trillion rubles. For comparison, the revenues of the state budget of the Russian Federation in 2017 was estimated at $ 13.5 trillion.
Of course, count on a repeat of the crisis of public Finance and the securities market of 1998 is not necessary. But still, experts admit "shear yield" in the amount of 400 basis points (b. p.). How serious is it? For example, in 2014, against the introduction of systematic Western sanctions and falling prices for hydrocarbons, the figure was about 200 basis points, and after the collapse of the ruble at the end of the same year 400 b. p.
The Russian banking system will react to possible "price break" is extremely heterogeneous. Large Western banks, or rather, their subsidiaries that have a policy of diversified assets, practically unaffected. But for the large state banks, which formed a fairly bulk packs OFZ, and for banks that have received Federal loan bonds in loans for increase of capital, the consequences can be very painful. After all, they have to hold the negative revaluation of the carrying value of its assets in government securities, with the result that banks will be forced to fix the balance sheet loss. For many of them it can lead to a drop in the capital adequacy ratio is below acceptable levels. According to calculations of Russian analysts, falling yields on OFZ 400 basis points may lead to reduce the carrying amount of the ten-year OFZ portfolio by 20% and reporting the respective losses.
The largest holder of BFL at this point is Sberbank, which owns bonds in the amount of more than 1 trillion rubles In the second place, VTB, whose portfolio of government bonds amounts to 400 billion rubles to Destabilize these financial institutions may threaten the stability of the banking system as a whole.
The leadership of the Central Bank of the Russian Federation is already considering possible mechanisms to minimize the above risk of sanctions. But tools protect here is not very large. The only debut idea at the moment is the redemption of Central Bank bonds Federal loan that will be sold by non-residents. And support of the ruble in the process of the withdrawal of their capital abroad. "We do not exclude, but not the fact that we consider it appropriate to use this tool", — said the head of the Central Bank Elvira Nabiullina. But this tool has one drawback: the redemption of OFZ at a lower rate of return in the secondary market may attract mill sellers not only residents, but also local "investment crowd". As in the famous film: "flown, hurry, buy the painting," that is, fold the securities portfolio while the market there is still such generous customer, as a state. And it threatens the already imbalance of monetary base, exchange rate and macroeconomic indicators.
As a consequence, the outflow of capital from Russia in 2018 may again greatly accelerated. The maximum outflow was recorded in 2014 153 billion. In 2015, he slowed down to 56.9 billion dollars, in 2016, the minimum was fixed — a total of 19.2 billion dollars. This year the capital outflow will amount to $ 30 billion, which is 1.7 times worse than the forecast announced by the Central Bank of the Russian Federation in the beginning of the year. A net exporter of capital is traditionally made by the banking sector, while other sectors played a role as capital importer, attracting foreign investment and reducing their own investments abroad. However to stop outflow of capital and replace it with the influx, according to forecasts of Ministry of economic development, will succeed only after 2023.
However, how to do it in the current Russian economic and political paradigm system of coordinates, it is not entirely clear. Although to solve this problem will help non-standard approach. "Those who hinder us, that we can help" — apparently thought so in Moscow, after learning that along with the new sectoral sanctions in the United States are preparing a package of sanctions "personal".
Reuters reported on the release in Russia of the special foreign currency bonds, which will be able to buy Russian businessmen and establishment after or on the eve of getting their names in black lists of the state Department. The profitability of such financial instruments will be slightly higher than the percentage of deposits in Western banks, this will be met with the anonymity of their owners. According to some Moscow technologists, such a scheme will bring to the coffers of the Motherland tens of billions of dollars. Well, who wouldn't want to take the new bonds "defense loan", to "shut off gas", for example, in a mild form will remind you of the fate of the disgraced oligarch Boris Berezovsky and parrot story that happened recently with the Russian Senator from Dagestan, and just billionaire Suleyman Kerimov, who was detained by police, though not in Makhachkala, but nice.
Moreover, the example of the Saudi princes, who were arrested on charges of corruption and can be released only after transfer to the state Treasury of Saudi Arabia billions of dollars in "compensation", suggests that the option anonymous issue bonds for the super-rich is still, so to speak, a variant light. Which the growth of the sanctions pressure may be replaced by a more "heavy". Moreover, as shown by the statements of some "left-right" ideologues of the Russian Federation, for example, the famous writer and part-Donetsk "Comandante" of Zakhar Prilepin, this version of "sshibaniya stuff" to very came to taste Russian electorate... And knock off is there: amount derived after 1991, Russia's capital is slowly but surely approaching a trillion dollars (and perhaps even exceeded this threshold).
Watching this whole sanctions "devilina", afflicts only one thing: the juice will flow from the Russian oligarchs after the full download the American "press" will pass us by. In recent years we have not done your homework and built a safe haven for foreign investments in Ukraine. Although some escaped to the Russian capital, given the set of all possible subjective factors, could settle with us. Unfortunately, in our politics prevails not Cypriot model of investment, and constant (at the level of the electorate) promoted by the "Saudi" military option of working with a large capital. That's just no effort for its use, nor the Saudi princes have not yet.
Tags: financial center , Russia , USA , finances