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. Last Updated: 07/27/2016

EBRD Faces Losses Over Russian Debt




LONDON -- The European Bank for Reconstruction and Development said Wednesday that it faces going into the red this year as a result of exposure to economic turmoil in Russia, where the bank has invested heavily.


Credit Suisse Group, meanwhile, scared investors when it acknowledged that its investment banking unit had $3.9 billion in net exposure to Russia and Brazil as of Sept. 4.


The European Bank for Reconstruction and Development told reporters in London that it projects losses of 150 million ecu ($169.5 million) in the first nine months of 1998 as a result of an extra provision of 180 million ecu for bad loans and failed investments in Russia.


The projected losses are expected to hit the overall yearly profits of the bank, ending hopes of a sixth consecutive year of profits.


"While it is clearly premature to make an assessment of the bank's results for the year as a whole, these are now likely to show a loss, following five years during which the bank earned a net profit after provisions," said Steven Kaempfer, EBRD vice president for finance.


However, EBRD President Horst K?hler was adamant that "we will not withdraw from Russia and the EBRD mandate is highlighted by recent events in Russia."


He said that "Russia's priority must be to form a government right away and proceed with reforms."


The numbers that Credit Suisse Group released Wednesday had long been awaited by financial analysts concerned about the potential downside to CS' big business from troubled emerging markets. The news helped push shares to a low of 219.75 Swiss francs ($155.60), down 24.25, or nearly 10 percent, before they edged up in later trading.


The exposure numbers overshadowed news that the banking and insurance group boosted net profit by 36 percent in the first half and forecast it would have a satisfactory year in 1998.


The Credit Suisse First Boston investment banking unit had net exposure to Russia of $2.16 billion and to Brazil of $1.75 billion, the group said.


Credit Suisse Group signaled on Aug. 26 that turmoil on global financial markets was whittling away at CSFB's bottom line.


It said then that CSFB's cumulative 1998 net profit had slipped to around $500 million at the end of business on Aug. 25, from $754 million at the end of June.


CSFB was a major player in Russia's debt markets, which were sent reeling when Moscow effectively devalued the ruble and reorganized its domestic debt last month. In its interim report, CS warned that the fall in the value of its financial holdings may affect second-half operating results.