‘When I need money,‘ ageing Hollywood hardman Bruce Willis smoulders at the Russian passersby, ‘I just take it’. No, this isn’t a devious attempt by Hollywood to cause a run on Russian banks (studios’ ire is reserved for North Korea), but rather an advert for Trust bank, which Russia is to bail out.
The Central Bank of Russia (CBR) said today that it’s going to loan 30 billion roubles (£343m) to the unfortunately named Trust, which had 278 branches and 145 billion rubles in deposits on December 1st, in order to prevent its bankruptcy. And you thought the days of bailouts were over…
If Bruce Willis isn't enough to make you bank at Trust, MT doesn't know what is.
The crisis in Russia, driven by the oil price slump and Western sanctions over Ukraine, threatens to be even more serious for the vast nation than that of 2008-9. The rouble tumbled recently from a November high of 49.47 to the dollar to a low of nearly 80, as confidence in the economy disintegrated.
To add to Vladimir Putin’s woes (indeed, this whole affair has been so tough on Putin, it’s almost enough to make MT cry), his former finance minister and long time ally Alexei Kudrin joined the long queue of people warning of impending doom for the country.
‘We have entered or are currently entering a full-blown economic crisis,’ Kudrin said at a press conference today, no doubt bringing the Advent mood down. ‘Next year we will feel it in full force.’
Kudrin placed the blame for the crisis firmly at the Kremlin’s gilded door. ‘The government has not been quick enough to address the situation,’ he said.
Bailing out a bank, albeit a mid-sized one, is surely a robust response, but it might be a case of too little, too late. Russia’s financial system is particularly vulnerable to what Kudrin called the ‘perfect storm’ of spiraling dollar debts and defaults by those unable to afford the new 17% interest rate as the economy contracts.
The news isn’t all bad for the Kremlin today, however. The rouble has strengthened in recent days, and is now back at 55 to the dollar. It would be a mistake to think that the bailout is the cause for some newfound confidence in the currency, however.
The real reason is a likely to be a little bit more prosaic, in a Soviet kind of way (old habits die hard…). According to reports in Kommersant newspaper, Prime Minister Dmitry Medvedev has ordered Russia’s large state-owned companies to sell their dollar reserves, at levels of up to $1bn (£641m) a day.
This is likely to be effective in shoring up the currency in the short run, but Russia and its nationalised corporations only have a certain amount of ammunition to do this. The question is whether the sanctions will have lifted or the oil price rallied before that happens. It could be a long winter.