Several major Wall Street banks have begun offering trades in Russian debt in recent days, according to banking documents seen by Reuters, giving investors another chance to get rid of assets widely regarded as toxic in the West. .
Most US and European banks had pulled out of the market in June after the Treasury Department banned US investors from buying Russian securities as part of economic sanctions to punish Moscow for invading Ukraine, according to an investor who bought Russian securities and owns two bank sources.
Following subsequent Treasury guidelines in July that allowed US holders to reduce their holdings, the largest Wall Street companies have cautiously returned to the Russian government and corporate bond market, according to emails, customer notes and other communications from six banks. such as interviews with the sources.
Banks now on the market include JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Deutsche Bank AG, Barclays and Jefferies Financial Group Inc, the documents show.
Russian President Vladimir Putin is seen in a meeting on Thursday. Russian debt trading has been complicated since Russia invaded Ukraine in February
Six of the largest Wall Street firms are now resuming trading in Russian debt
The return of the largest Wall Street firms, the details of the trades they offer to facilitate and the precautions they take to avoid violating sanctions are reported here for the first time.
Bank of America, Barclays, Citi and JPMorgan declined to comment.
A Jefferies spokesperson said it “worked within global sanctions guidelines to facilitate our customers’ needs to navigate this complicated situation.”
A source close to Deutsche Bank said the bank will only trade bonds for clients on a case-by-case basis to further reduce risk exposure in Russia or that of its non-US clients, but will not open new business outside of these two categories.
About $40 billion in Russian government bonds was outstanding before Russia launched what it calls a “special military operation” in Ukraine in February.
About half was held by foreign funds.
Many investors got stuck with Russian assets as their values plummeted, buyers disappeared and sanctions made trading more difficult.
An excavation process of civilians killed during the Ukraine-Russia war in the city of Rubizhne in Luhansk Oblast, on Friday
Ukrainian soldiers fire a tank at Russian troops on a position in the Donetsk . region on Friday
Ukrainian soldiers drive past a family graffiti on damaged buildings in Bakhmut, Donetsk
Valentyna Kondratieva, 75, left, is comforted by a neighbor as they stand in front of her damaged home in Kramatorsk, Donetsk region, on Saturday
In May, two US lawmakers asked JPMorgan and Goldman Sachs for information about transactions in Russian debt, saying they could undermine sanctions.
The following month, the Treasury’s Office of Foreign Assets Control banned U.S. money managers from buying Russian debt or stocks on secondary markets, prompting the banks to pull out.
Regulators have since taken steps to ease the pain for investors.
The Treasury issued further guidance on July 22 to help settle standard insurance payments on Russian bonds.
It also clarified that banks could facilitate, clear and settle transactions of Russian securities if this would help US holders wind down their positions.
Separately, European regulators have also relaxed rules to allow investors to deal with Russian assets by allowing them to put them in so-called side pockets on a case-by-case basis.
The price of some Russian bonds has risen since late July along with renewed trading activity.
That could make the transactions more attractive to investors and also help companies selling Russian default protection.
For example, US bond manager PIMCO — which was on the line for a payout of about $1 billion after Russia defaulted on its dollar debt in June — could now save about $300 million, one investor estimated. PIMCO declined to comment.
“For the first time in a long time, there is an offer for both local and external bonds,” said Gabriele Foa, portfolio manager of the Global Credit Opportunities Fund at Algebris, which tracks the Russian securities market.
“Some banks and brokers are using this offer to divest Russian positions for investors who want to get out.”
Reuters could not determine who bought the bonds.
Some banks offer to trade Russian government and corporate bonds, and some offer to facilitate trading of bonds in both rubles and US dollars, according to the documents and the investor who owns Russian securities.
But they also demand extra paperwork from customers and remain averse to taking risks.
For example, Bank of America stated in a research update to customers in capital letters in red on Wednesday: “Bank of America is now facilitating the divestment of Russian government bonds and select corporate bonds.”
But it added that it would act as a “risk-free principal in customer-facilitating transactions,” meaning a situation where a dealer buys a bond and immediately resells it.
It also warned that there were “many rules around the process” that remained subject to “protocol and attestation.”
The approaches also differ between banks.
For example, in some cases, banks offer clients to dispose of their assets, as well as other types of transactions that would reduce exposure to Russian assets, while others limit transactions to just the sale of assets.
Sometimes they ask investors to sign documents prior to the execution of the transaction that would allow the banks to cancel transactions if settlement does not go through and there is a risk that the banks have Russian paper on their books, according to one of the documents and the investor.
A bank warned customers that settlements would take longer than usual.