New York –
Several major Wall Street banks have begun offering to facilitate trading in Russian debt in recent days, according to bank documents seen by Reuters, giving investors another chance to dispose of assets widely viewed in the West as toxic.
Most US and European banks had pulled out of the market in June after the Treasury Department banned US investors from buying any Russian securities as part of economic sanctions to punish Moscow for invading Ukraine, according to a investor who owns Russian securities and two bank sources.
After further guidance from the Treasury in July that allowed US holders to reduce their positions, Wall Street’s biggest firms have cautiously returned to the market for Russian government and corporate bonds, according to emails, client notes and other communications from six banks as well. such as interviews with sources.
Banks in the market now include JPMorgan Chase & Co JPM.N, Bank of America Corp BAC.N, Citigroup Inc CN, Deutsche Bank AG DBKGn.DE, Barclays Plc BARC.L and Jefferies Financial Group Inc JEF.N, they show the documents
Here we report for the first time the return of Wall Street’s biggest firms, the details of the trades they offer to facilitate and the precautions they are taking to avoid breaching sanctions.
Bank of America, Barclays, Citi and JPMorgan declined to comment.
A Jefferies spokesman said it was “working within global sanctions guidelines to facilitate our clients’ needs to navigate this complicated situation.”
A source close to Deutsche Bank said the bank trades bonds for clients only on a request and case-by-case basis to further manage its exposure to Russia risk or that of its non-US clients, but will not do any new business . outside of these two categories.
Stranded Assets
About $40 billion of Russian sovereign bonds were outstanding before Russia began what it calls a “special military operation” in Ukraine in February. About half was held by foreign funds. Many investors were left stranded with Russian assets as their value plummeted, buyers disappeared and sanctions made trading difficult.
In May, two U.S. lawmakers asked JPMorgan and Goldman Sachs Group Inc GS.N for information about Russian debt deals, saying they could undermine sanctions.
The following month, the Treasury’s Office of Foreign Assets Control banned US money managers from buying any Russian debt or stocks in secondary markets, prompting banks to pull back.
Since then, regulators have taken steps to help ease investor pain.
The Treasury offered further guidance on July 22 to help settle default insurance payments on Russian bonds. He also clarified that banks could facilitate, clear and settle transactions in Russian securities if this would help US holders reduce their positions.
Separately, European regulators have also relaxed rules to allow investors to deal with Russian assets, allowing them to put them in so-called side pockets on a case-by-case basis.
The price of some Russian bonds has risen alongside renewed trading activity since late July. That could make the deals more attractive to investors and also help companies that sold protection against a Russian default.
For example, US bond manager PIMCO, which was on the hook for a payment of about $1 billion after Russia defaulted on its dollar debt in June, could now save about $300 million, it estimated an investor PIMCO declined to comment.
“There is a bid for local and foreign bonds for the first time in a long time,” said Gabriele Foa, portfolio manager at the Algebris Global Credit Opportunities Fund, which tracks the Russian stock market. “Some banks and brokers are using this offer to make it easier for investors who want to exit Russian positions to divest.”
Reuters was unable to establish who was buying the bonds.
Lots of rules
Some banks are offering to trade in Russian sovereign and corporate bonds, and some are offering to facilitate trading in bonds denominated in both rubles and US dollars, according to the documents and the investor who holds Russian securities. But they also ask customers for extra paperwork and remain risk-averse.
In a research update for clients on Wednesday, for example, Bank of America stated in red capitals: “Bank of America is now facilitating the divestment of Russian sovereign bonds and select corporate bonds.”
But it added that it would act as a “risk-free principal in client facilitation trades,” meaning a situation where a dealer buys a bond and immediately sells it. He also warned that there were “a lot of rules around the process” that remained subject to “protocol and certification.”
Approaches also differ between banks. In some cases, for example, banks offer clients to help divest their holdings, as well as other types of operations that would reduce exposure to Russian assets, while others limit operations only to the sale of assets
Investors are sometimes asked to sign documents before the trades are executed that would allow banks to cancel the trades if the settlement does not go through, risking leaving the banks with Russian paper on their books, according to a of the documents and the investor.
One bank warned customers that settlements would take longer than usual.
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