Banks in talks with troubled buyers over Russian assets – sources

NEW YORK/LONDON, March 9 (Reuters) – Banks are in talks with potential buyers about how to shed exposure to Russian corporate loans, but fears of sanctions and price uncertainty are limiting activity trade and buyers’ ability to act, several banking sources said.

Western sanctions on Moscow over its invasion of Ukraine have prompted some distressed debt buyers to approach banks holding Russian loans to probe their appetite for potentially selling that exposure at a discount, two bankers said.

Another banker said he had the option of buying loans from Russian companies, but rejected the offer for fear that more sanctions would further limit the ability to recover value.

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The talks, though tentative, highlight the uncertainty of foreign banks over how to manage their exposure to Russia, which, according to data from the Bank for International Settlements, stands at $120 billion. Read more

Banks tend to hold loans in their portfolios, quietly selling their exposure only through bilateral transactions, as they don’t want to be seen as shedding paper in the market.

One of the sources said he was approached by the troubled debt offices of two US banks last week to discuss any potential interest in selling loans, but said he was skeptical that the talks would lead anywhere.

“I think they could say they’re interested, it’s exciting for struggling markets, but I think we’re a long way from seeing real liquidity,” the banker said, speaking on the guise of anonymity because the discussions are private.

Global banks are experienced with sanctions, but the restrictions imposed on Russia are unmatched in their scale, speed and complexity and could grow further, prompting banks to adopt extreme caution in all dealings involving entities and Russian assets.

A loan banker at a U.S. lender said that while there was discussion about the Russian bank debt transaction in the secondary market, activity was also limited due to the lack of clarity on how everything deal would be settled.

“Every office in distress in this situation, they can see something that they can buy for 20, 30 cents on the dollar…they will talk to the banks but not necessarily agree to anything,” he added .

In addition to the risk of sanctions, activity is further constrained as it is difficult to put a price on Russian assets as some hopeful dips are temporary and would rather hold on than sell at huge discounts, have indicated some sources.

Discussions are not limited to bank loans: funds specializing in distressed debt are also considering buying Russian bonds, said a lawyer in London who said his firm had been contacted by funds considering such transactions. .

“I don’t know of a single troubled fund that’s not doing anything right now, sitting down,” the attorney said.

JPMorgan said this week that all Russian bonds will be excluded from its emerging market indices at the end of the month, a move that will add more constraints to trading Russian paper.

“Liquidity is obviously not great, but there is supply and there is supply in the market today,” said Marcelo Assalin, head of emerging market debt at William Blair Investment Management, adding that Russian bonds were being sold at around 15 cents on the dollar.

“Exclusion from the index will lead to more forced selling…Sooner or later, the price of bonds will be close to zero and most fund managers will not be able to hold them,” he said.

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Reporting by Davide Barbuscia in New York and Yoruk Bahceli and Marc Jones in London; Editing by Megan Davies and Andrea Ricci

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