Markets Tick Up in Sign of Stability

MTVTB, the country's second-biggest bank, is in discussions to take over Svyaz-Bank, Vedomosti reported Monday.
Russian markets enjoyed a modest rise Monday, continuing the positive trend set by Friday's record jump and taking a time out from the cycle of volatile movements in recent weeks.

The carryover from Friday's rapid-fire gains hit the ruble-denominated MICEX Index immediately.

During the first minute of trading, the index soared to a daily high of 1,199 points but quickly petered out toward its opening level, leaving the index to close at 1,105 points, a modest gain of 0.6 percent. The dollar-denominated RTS also experienced an immediate surge but ended the day with a smaller, 1.1 percent gain at 1,309 points.

Investor confidence could have stabilized further after the government announced on Sunday that it would make 600 billion rubles ($24.2 billion) in emergency funds available at auction Monday to 25 more Russian banks. As of last week, the Finance Ministry had only designated three funding recipients: the country's three largest state-controlled banks: Sberbank, VTB and Gazprombank.

Natalya Orlova, chief economist at Alfa Bank, said the liquidity package might not be enough to make a big difference to the majority of the country's 1,000-plus banks.

"The fact that 28 banks have access to money is not very significant. But clearly this is better than only having three state-owned banks with access to financial deposits," she said.

On Monday, Vedomosti reported that one of the three big banks involved in the government's original bailout package, VTB, was in discussions about a potential takeover of second-tier lender Svyaz-Bank.

Chris Weafer, chief strategist at UralSib, noted that other second-tier banks without access to government funds could also become takeover targets.

"Bigger, well-financed banks are in a strong position to make acquisitions and to cherry-pick the troubled banks that have attractive assets. … There will be some defaults amongst the smaller banks, but we do not believe that the Central Bank will allow any bank with a market profile to default."

The Finance Ministry's decision to defer the quarterly value-added tax payments that were scheduled for Oct. 1 will take a bit of the pressure off the banking sector as a whole, however.

"This was a very positive step in the right direction," Orlova said. "There was huge pressure on the banks; everyone was nervous about the upcoming payments. This October deadline was a big uncertainty for the banking sector. Now, with the delay, there will be more trust between banks and more confidence can be restored."

Prime Minister Vladimir Putin on Monday said the government's actions last week had allowed the stock market to weather the storm.

"The country's financial authorities … took measures that produced a positive effect," Putin said at a meeting of the Presidium, Reuters reported. "Effectively, the market has recovered"

Putin also scotched speculation that the government might draw upon the oil stabilization funds to prop up the stock market and insisted that only funds from the current federal budget would be used for that purpose.

Despite government efforts, investors may still remain skeptical about the Russian market's stability in the near future, said Richard Hainsworth, chief executive of rating agency RusRating.

While many have cited oil prices as the driver of the market, Hainsworth said it was rather "the unpredictable nature of the government" that investors need to worry about.