Thain Says Russia Not Immune

MTMerrill Lynch CEO John Thain
Amid the financial blizzard that swept through global markets this week, Merrill Lynch CEO John Thain brought a sobering message to Moscow on Wednesday, warning that the Russian economy was not immune to the crisis.

"Even though we do see great growth in Russia and India, China and Brazil, I think that none of those markets are immune to a global slowdown," Thain said at a news conference at the plush Ritz-Carlton hotel to mark the opening of a new Merrill Lynch office in Moscow.

"Russia is probably more insulated than other of those BRIC emerging growth economies, but the world is a very interconnected place and we saw all the world's equity markets react negatively," he said.

Thain, one of Wall Street's biggest hitters, made his comments as Russian markets fell for a seventh straight day on fears of a U.S. recession.

The MICEX ended the day down 4 percent, while the RTS fell 3.9 percent. (Story, Page 5.)

With the energy-driven economy buoyed by high oil and gas prices, and with exports to the United States relatively low, especially compared with those to China, Thain said Russia could be protected "to a significant extent."

But asked if Russian authorities could move to further protect the economy from any global shockwaves, Thain was skeptical. "The linkages between the world economies are simply facts, and I don't think you can change that in the near term," he said. "The slowdown in the U.S. will be felt in many other places in the world."

Thain was speaking during a whistle-stop visit to Moscow -- his first official trip abroad since taking the reins at Merrill Lynch two months ago, at the height of the fallout from the subprime mortgage crisis.

Speaking to reporters at the World Economic Forum in Davos, where Thain is headed Thursday, Russia's top representative there, Finance Minister Alexei Kudrin, said the country's huge foreign-currency reserves would help stave off an economic crisis.

"Of course, we have become more dependent on the world economy, and this will affect us, but we have a good system of defense and immunity," Kudrin said.

And international investor interest in Russia as an "island of stability" could well increase, he said. (Story, Page 5.)

Also in Davos, Andrei Kostin, head of state-owned bank VTB, sounded similarly upbeat about the potential resilience of the Russian economy.

"Markets in China, India and Russia are growing much better and to a certain extent will provide certain compensation for the world economy for whatever losses the U.S. has,'' Kostin said, Bloomberg reported.

Although he steered clear of saying there would definitely be a U.S. recession, Thain said the troubles in the U.S. housing market were the worst since the 1930s.

"There is no question that the U.S. economy is slowing significantly," he said.

As stock markets around the world nosedived at the beginning of the week, the U.S. Federal Reserve slashed its benchmark interest rate by three-quarters of a percentage point in an emergency move Tuesday.

Thain warned that there would not be a "quick cure to the problem'' but added that the expectation of further interest-rate cuts could help mitigate the damage.

Coming from the head of Merrill Lynch, a somber assessment of the current financial turmoil is hardly surprising. Last week, the bank reported huge operating losses of $8.6 billion for 2007, making it one of the hardest-hit U.S. banking giants in the credit crunch.

Thain, who previously headed the New York Stock Exchange, was drafted in to replace Stan O'Neil as head of the banking giant in November.

According to reports at the time, Thain will earn nearly $50 million per year, with potential bonuses taking his pay as high as $120 million, depending on the bank's share performance.

Despite the downbeat global outlook, Thain insisted that Russia was a vital and growing market for Merrill.

Last year Merrill helped Russian firms close 29 major deals, worth almost $70 billion, including United Company RusAl's acquisition of a stake in Norilsk Nickel from Mikhail Prokhorov's Onexim group.

And despite brutal job cuts in some of the bank's U.S. offices, especially in the mortgage department, Thain said Merrill was looking to expand rather than lay off employees in Russia.

Thain's praise for the Russian economy came a day after he co-hosted a fundraising event for U.S. presidential hopeful Senator John McCain, the new frontrunner in the race for the Republican nomination. A trenchant critic of President Vladimir Putin's administration, McCain has previously called for "harsh" treatment of Russia, including its expulsion from the Group of Eight.