Ripples from Russia's economic crisis are spreading rapidly through world financial markets, as Citicorp, Bankers Trust, Morgan Stanley Dean Witter, Barclays and Nomura Securities Tuesday joined the growing list of companies reporting heavy losses on their Russian businesses.
Citicorp's chairman, John Reed, and its president, Victor Menezes, said in a statement to employees that they expected earnings for the three months ended Sept. 30 to be cut by about $200 million because of losses related to Russia.
Citicorp, the nation's No. 2 bank, also said that its plans to merge with the Travelers Group are "absolutely on track" and that it is confident of Federal Reserve approval, which it hopes will come before the end of September. Earlier this week, Salomon Smith Barney, Travelers' investment banking subsidiary, said it had lost an estimated $360 million after taxes in the past two months from its arbitrage and Russian businesses, with $60 million of that directly attributable to Russian-related credit losses.
Bankers Trust, the seventh-largest American bank, said early Tuesday that, to date, it has a $350 million pretax trading loss for the three months ending Sept. 30 that is "primarily attributable to charges to reduce the carrying amount of Bankers Trust's exposure to Russian Federation securities to 15 percent of face value."
As of Aug. 31, Bankers Trust had about $350 million of Russian loans and related assets, the company said, adding that half that amount is financed with revenue generated in Western Europe. That amount includes loans to companies in Russia that have parent companies in Western Europe, and assets that are covered by European government guarantees, said Doug Kidd, a Bankers Trust spokesman.
At Morgan Stanley, Jon Diat, a company spokesman, read a statement Tuesday afternoon saying that the firm "has been affected by the difficult conditions in global capital markets." As a result, "certain credit-sensitive trading activities, and a loss in connection with an institutional leveraged emerging markets portfolio," will cause an estimated $110 million cut in net income for the fiscal quarter just ended.
In a statement issued in London, Barclays said it expected to take a charge of 250 million pounds this year to cover potential losses on its 340 million pounds of Russian lending and securities trading. The big British bank also said its Barclays Capital investment banking subsidiary has probably lost as much as 75 million pounds before taxes in the past two months because of the Russian crisis.
Nomura Securities, the largest Japanese brokerage firm, also said Tuesday that it had lost as much as $350 million on Russian bonds in the past year. The big Swiss banks UBS and Credit Suisse have also disclosed hundreds of millions of Swiss francs of losses on their Russian businesses.
And the litany of losses isn't over yet. New York analysts said Tuesday that they expect Chase Manhattan Bank to make a statement about its losses on Russia, perhaps as early as Wednesday. A Chase spokesman declined to comment on the firm's Russian business.
Western leaders, meanwhile, are trying to pressure Russia into taking more responsibility for its financial obligations. In a speech in Moscow Tuesday, President Clinton, in Russia for meetings with President Boris Yeltsin and other leaders, urged the country "to play by the rules" and "to treat investors fairly," or risk alienating badly needed international investors.
Discussing Bankers Trust's losses, Ronald Mandle, an analyst at Sanford Bernstein & Company in New York, said the loss was bigger than he had expected. "A lot of investors looked at Russia as being too big to fail and it turned out not to be," he said, adding that "it's extremely unusual to see a country default on its local currency bonds."
Most of the bad news is out for big American banks, Mandle said, except for one or two larger institutions -- particularly Chase. Mandle said he had knocked his earnings estimates down a little for both Citicorp and Chase because of the Russian crisis.
Some analysts criticized the financial services industry for this latest round of losses. "This all shows us that banks and financial companies have not properly assessed the risks of their Russian businesses," said John Keefe, president of Keefe Worldwide, a New York financial services consulting firm. "Banks go through this type of event every few years," he added, citing past problems with real estate investment trusts, Latin American loans, commercial real estate and holdings of junk bonds. "The latest problem is Russia."
Nevertheless, as Mandle and other analysts pointed out Tuesday, U.S. and other big Western banks are now relatively well-capitalized and should easily be able to absorb the kinds of losses caused by their loans to Russia.
nytimes.com
Regards, Jeff
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