West on alert as Russians float rouble

ALARM BELLS rang around the globe after Russia yesterday threw in the towel and announced a devaluation of the rouble and a suspension of debt repayments in an attempt to stabilise its ailing economy.

The news came as it emerged that a clutch of Western investment banks have been stung for at least $100m (pounds 61m) after one of Russia's largest banks, SBS-AGRO, failed to meet margin calls because of mounting losses in the dollar-denominated debt market.

Traders said blue-chip banks with big positions in the market include Goldman Sachs, Salomon Smith Barney and SBC Warburg.

The authorities said they would allow the rouble to fall by as much as 50 per cent against the dollar, that there would be a 90-day moratorium on certain foreign debt repayments and trading in the government debt market would be suspended.

Standard & Poor's, the leading credit agency, slashed its Russian long- term foreign currency rating from B- to CCC.

George Soros, the New York-based financier whose intervention last week played a decisive role in the latest turn of events, said last night: "The government has bought itself a little time." He called the devaluation "necessary, courageous and timely," adding that the government "had stopped the collapse".

The news - which came despite repeated official assurances last week that there would be no devaluation - hit investor confidence throughout the emerging markets.

Russian foreign currency bonds plunged and other emerging market debt also fell. Most Russian banks immediately raised their price for dollars to 7.50 or 8.00 roubles - above the new official floor of 9.5 roubles to dollar.

The Russian stock market opened 15 per cent lower, but pared back some of its earlier losses to close down 4.85 per cent at 109.43 in thin trading.

Russia's central bank has been bailing out SBS-AGRO as part of a lifeboat operation to keep the top 12 or so Russian banks afloat and avoid a wholesale meltdown in the financial sector. Other top 20 banks believed to be on the critical list include Inkombank and Rossikskiy Creditbank.

Analysts say that as many as 400 banks could be at risk following yesterday's devaluation. However, the biggest fear is that one of the top 20 really big banks may go under.

SBC Warburg, which is to axe 80 staff at its Moscow offshoot Warburg Brunswick, said last night it was unable to comment on its exposure to Russia ahead of half year results due out later this month. However, analysts put its total exposure including its loan book at around pounds 200m. Salomon Smith Barney refused to comment.

Emerging markets were hit worldwide, as were emerging currencies. in particular the Czech crown and Mexican peso. Analysts said the Russian devaluation re-ignited fears about the ability of China, Hong Kong and Brazil to hold their currency pegs.

The German electronically-traded Xetra DAX index closed down 0.76 per cent at 5,432.03 after dipping more than 3 per cent earlier in the day. Analysts expressed concerns about the exposure of German companies - particularly banks - to Russia, and the mark hit a five-week low against the dollar of 1.81 marks before making up ground in late trading.

The FTSE 100 had a jittery start, but closed up 12.2 points or 0.22 per cent at 5,467.2. Bond markets were the main beneficiaries, and both US Treasury and German bond yields touched record lows in morning trade. The Dow was trading up 79 points at 8,504.3 early yesterday afternoon.

Overnight in Japan, the Nikkei tumbled 2.18 per cent, 329 points, to 14,794.66, closing below the 15,000 barrier for the first time in two months.

In a letter in yesterday's Financial Times, the chief executive of the Hong Kong monetary authority defended the decision to intervene in the markets. Joseph Yam said the authority had "reason to believe" there had been currency manipulation by investors.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: £20000 - £25000 per annum + c...

Recruitment Genius: Account Handler - Personal Lines

£20000 per annum: Recruitment Genius: This provider of insurance and financial...

Recruitment Genius: Graduate Developer / IT Support Engineer

£16000 - £25000 per annum: Recruitment Genius: This fast growing financial ser...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Day In a Page

Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash
I would never quit Labour, says Liz Kendall

I would never quit party, says Liz Kendall

Latest on the Labour leadership contest
Froome seals second Tour de France victory

Never mind Pinot, it’s bubbly for Froome

Second Tour de France victory all but sealed
Oh really? How the 'lowest form of wit' makes people brighter and more creative

The uses of sarcasm

'Lowest form of wit' actually makes people brighter and more creative
A magazine editor with no vanity, and lots of flair

No vanity, but lots of flair

A tribute to the magazine editor Ingrid Sischy
Foraging: How the British rediscovered their taste for chasing after wild food

In praise of foraging

How the British rediscovered their taste for wild food