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
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests
Mexico: A culture that celebrates darkness as an essential part of life

The dark side of Mexico

A culture that celebrates darkness as an essential part of life
Being sexually assaulted was not your fault, Chrissie Hynde. Don't tell other victims it was theirs

Being sexually assaulted was not your fault, Chrissie Hynde

Please don't tell other victims it was theirs
A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border