Sberbank CEO Sees Economy Slowing on Ukraine: Russia Overnight

May 23, 2014 10:53 am ET

May 23 (Bloomberg) -- OAO Sberbank rebounded today after the stock dropped yesterday when the lender’s chief executive officer said the Ukraine crisis is hurting the economy more than he expected.

Shares of the country’s biggest bank, which holds about half of Russia’s deposits, fell 0.8 percent yesterday, pushing their loss this year to 20 percent. They jumped 3.4 percent at 10:18 a.m. in New York today while the Bloomberg Russia-US Equity Index of the most-traded Russian shares on American exchanges added 0.9 percent as President Vladimir Putin said Russia will work with the winner of Ukraine’s presidential vote, easing concern a standoff between the two nations will lead to wider sanctions.

Herman Gref, a former economy minister who has been Sberbank’s CEO since 2007, said at the St. Petersburg International Economic Forum yesterday that Russia is facing stagnation this year as international sanctions linked to the six-month standoff in Ukraine curb growth. His comments came as data showed that a slump in fixed-capital investment extended into a fourth month and increases in wages trailed economists estimates. The International Monetary Fund said last month that the $2 trillion economy may already be in recession.

“The optimism is over and uncertainty is now dominating,” Ivan Manaenko, the head of research at Veles Capital LLC in Moscow, said by phone yesterday. “The economic slowdown impacts everybody and the banks already feel it, as demand for loans decreases and consumer confidence fades.”

Russia’s gross domestic product growth of 0.9 percent in the first quarter was the slowest in a year, the Federal Statistics Service said May 15. The Micex index sank 0.7 percent in Moscow yesterday after gaining 4.2 percent in the previous four sessions.

Ukraine Election

Sberbank’s American depositary receipts rose to $10.35 today. The Market Vectors Russia ETF, the biggest U.S. exchange- traded fund that holds Russian shares, added 1.1 percent to $25.67.

Sberbank is turning away more potential borrowers on credit risk and is now approving about 55 percent of retail loans, down from as many as 83 percent earlier, Gref told reporters in St. Petersburg today.

Ukraine’s hryvnia has dropped 3 percent this month, the worst performance among 10 currencies tracked by Bloomberg in Eastern Europe and Africa, amid concern the standoff with Russia would disrupt a presidential election scheduled for May 25. The U.S. and its European allies have banned some companies and individuals linked to Russian President Vladimir Putin, who they say is stoking unrest in the former Soviet republic’s mostly Russian-speaking eastern region.

Deadly Clash

The U.S. and the European Union have vowed to punish Russia with industry-wide sanctions if the election is undermined. Putin this week said he withdrew troops from near the border.

Capital outflow from Russia reached $50.6 billion in the first quarter, compared with $63 billion in the whole of 2013. Economy Minister Alexei Ulyukayev said at the St. Petersburg forum that he doesn’t expect wider sanctions.

The conflict took a deadly turn yesterday as fighting between separatists and Ukraine’s army intensified. Thirteen soldiers were killed in an attack by pro-Russian insurgents, according to acting President Oleksandr Turchynov.

“Ukraine will never return to a post-Soviet neo-empire, which the Russian government dreams about,” he said in a statement posted on parliament’s website.

Veles Capital’s Manaenko said that while he expects the election to take place as scheduled, it won’t necessarily resolve the crisis. If no candidate gets enough votes to be declared the winner, a run-off would have to be scheduled, which could prolong the volatility in Russian stocks, he said.

“Another question is whether the Kremlin will recognize the winner as a legitimate leader,” Manaenko said. “Russia can’t afford any more sanctions. The economy is already slowing.”

--With assistance from Ksenia Galouchko in Moscow.