. Last Updated: 07/27/2016

Kremlin Row Shakes Russian Market

Russia's financial markets were thrown into turmoil Thursday by the political high jinks that culminated in security chief Alexander Lebed's dismissal, with stock and debt prices falling and brokers divided over the market's near-term course.

President Boris Yeltsin's 6 p.m. announcement that he had accepted Lebed's resignation came too late to affect trading in Moscow, where nervousness over "creeping coup" comments late Wednesday by Interior Minister Anatoly Kulikov implicating Lebed had already driven equities down 3 percent.

"People are worried about the power struggle and rumors of a coup," said an emerging market debt dealer with ING Barings in London, where Russia's dollar-denominated paper sank more than three points to 74 cents of face value before recovering slightly.

James Nail, head of research with Deutsche Morgan Grenfell in Moscow, said there were two views on Lebed's dismissal among market watchers and dealers.

"One view is that it is bad news, the other view is that it ends uncertainty and puts Lebed out where he should be -- building his political base for the succession."

Konstantin Kantor, head of research with Rinaco-Plus brokerage, saw little likelihood of a selling spree Friday.

"Six o'clock was a good time for the announcement," he said. "It means that people will have time to calm down, and I don't expect markets to be heavily affected."

The Moscow Times Index of 50 leading shares was down 3 percent to 126.87 in dollar prices, on steady volume of $23 million on the electronic Russian Trading System at 6 p.m. Dealers said the uncertainty preceding Yeltsin's television address hit blue chips badly but second-tier stocks were relatively untouched.

"That was because the second-tier did not rise so much last week," said Alexei Genkin, international sales manager with Alfa Kapital. "Also the main sellers today were brokers and they mainly hold blue chips."

Some investors were optimistic that Yeltsin's dismissal of Lebed -- and implicit siding with the ex-general's political rivals Prime Minister Viktor Chernomyrdin and Kremlin chief of staff Anatoly Chubais -- was a boost for economic reform.

"Yeltsin's action lanced the boil," Robin Hubbard, senior emerging market economist at Chase Manhattan in London, told Reuters. "There are a lot of people out there who are hungry for Russia risk," Mark Cooke, a fund manager at Brunswick Capital Management in London, told the agency.

But others saw a prolonged period of uncertainty and said the market will suffer because of the top-level power struggle.

"We have been predicting a 5 to 15 percent slide until the succession crisis is resolved," said Nail of Deutsche Morgan Grenfell. "It will only stop once it is clear who is going to be the next president."

Russian stocks and debt have been bolstered recently by positive credit ratings for Russia issued by international agencies ahead of a planned Eurobond issue next month.

A Standard & Poor's representative said Lebed's dismissal would have no affect on the agency's BB- evaluation.

"If something like that would affect our rating then our rating would be worth nothing," Helena Hessel, director of S&P's sovereign rating group, told Reuters. "Our rating is not based on whether or not Lebed is security chief."

A Moody's manager also said his agency's rating would be unaffected.