Wall Street leaders including Lloyd Blankfein and James Gorman, who have courted business in Vladimir Putin’s Russia, are facing a dilemma as tensions over Ukraine escalate.
Their scheduled attendance at Putin’s annual investor showcase in St. Petersburg in May is in doubt as sanctions imposed by the U.S. in response to Russia’s annexation of Crimea -- and retaliatory moves by Putin -- threaten the ties between Russia’s leader and businesses including Goldman Sachs Group Inc. and Morgan Stanley. Spokesmen for the New York-based banks declined to comment on whether the executives will attend.
Wall Street firms that have pursued deals in Russia for years are being forced by the dispute over Ukraine to reexamine their bet on friendlier relations between Putin and the West. U.S. President Barack Obama yesterday added to the list of Russians targeted by financial sanctions and a June Group of Eight meeting in Russia was scrapped. Russia banned entry by U.S. leaders including House Speaker John Boehner.
Goldman Sachs has made at least $1 billion in investments in Russian companies and won a three-year contract last year to advise the Kremlin on improving the nation’s image overseas and to help the country attract more investors. Morgan Stanley plans to sell its oil-sales unit to OAO Rosneft, run by Putin ally Igor Sechin. Citigroup Inc. (C) has a more than 50-branch retail network on the ground.
This year’s three-day St. Petersburg International Economic Forum in Putin’s hometown runs from May 22 to May 24. The March 14 list of participants featured Deutsche Bank AG (DBK) co-Chief Executive Officer Juergen Fitschen and Zurich-based UBS AG (UBSN)’s investment-bank chiefAndrea Orcel, as well as the heads of companies such as PepsiCo Inc., ConocoPhillips, Alcoa Inc., Total SA and Glencore Xstrata Plc.
Blankfein, 59, has been courting the Kremlin since at least April 2007, when he wrote toPutin seeking a meeting to discuss expanding operations. The bank’s board of directors traveled to Russia in June 2008 for a four-day gathering split between St. Petersburg and Moscow. The trip included a tour of the State Hermitage Museum, a private session with Putin and a speech by former Russian leader Mikhail Gorbachev, according to an account in Andrew Ross Sorkin’s book “Too Big to Fail” about the 2008 global financial crisis.
Blankfein, along with JPMorgan Chase & Co. CEO Jamie Dimon, 58, is also a member of Prime Minister Dmitry Medvedev’s advisory committee for turning Moscow into a financial center.
HSBC Holdings Plc (HSBA), Barclays Plc, Morgan Stanley (MS) and Banco Santander SA are among international lenders that have abandoned consumer banking in Russia in recent years in the face of dominant local banks like OAO Sberbank and VTB Group, the two largest Russian lenders.
VTB Capital on March 17 cut its 2014 Russian growth forecast to zero from 1.3 percent as “domestic demand is set to halt on the uncertainty shock and tighter financial conditions.”
If Russia’s economy stagnates, banks would face increasing bad debts and delinquencies, Natalia Berezina, a banking analyst at UralSib Financial Corp. in Moscow, said by phone. “Foreign banks may reassess their presence in Russia if it’s no longer profitable here anymore,” she said.
“At this stage only Putin’s very loyal friends will show up at the forum,” Ovanes Oganisian, a strategist at Midlincoln Research in Moscow, said by phone. “They will put on a show to try to put Ukraine behind them, but the truth is Russia is a much less important part in global emerging markets than it used to be.”
Source: Bloomberg
