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Impact of US sanctions threatens to derail Sberbank recovery
Russian bank suffers sharp drop in share price despite not being targeted by Washington

Max Seddon in Moscow APRIL 11, 2018

Sberbank has been one of the worst-hit stocks because of the US sanctions launched against
Russian oligarchs and their companies last week — despite not being targeted by Washington.

The slump, which saw Sberbank’s share price fall by more than 20 per cent on Monday before
slightly recovering, has triggered concern among investors on the sanctions’ potential to hit
companies that are not being singled out by the US government.

“There’s going to be a lot of collateral damage. People are going to say, ‘why do I need Russia? Why
take the risk?’” said a senior western banker in Moscow.

With half of Russia’s retail deposits, Sberbank is three times the size of nearest competitor VTB by
assets and recently became the second-largest bank in Europe by market capitalisation. Its stock
accounts for 22 per cent of the MSCI Russia index, two-thirds more than its nearest rival.

That leaves it particularly sensitive to Russia’s slumps as a whole. After sanctions and a falling oil
price saw the rouble’s value halve in 2014, panicked depositors nearly started a run on Sberbank.

Now the fallout from tension between the US and Russia is threatening to derail Sberbank’s
recovery.

“When somebody sells Russia, the first thing that’s going to be sold off is Sberbank. It’s
unfortunate because it’s nothing to do with the fundamentals,” said Luis Saenz, co-head of equities
at BCS Global Markets.

In his decade running Sberbank, chief executive Herman Gref turned the bank from a Soviet-era
dinosaur into a tech-focused group taking its cues from Silicon Valley.

Even after the US banned Sberbank from raising all but short-term debt on western markets, those
changes still saw its balance sheet shoot up. In the past two years alone, Sberbank reported record
profits in four quarters out of five and doubled its stock price.

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Bankers say that those financials will probably help Sberbank weather the storm. “It’s a sin not to
buy Sber when it’s down 20 per cent,” said Oleg Tinkov, chairman of online bank Tinkoff.

“We’re the most liquid thing on the market with the biggest market cap, so we’re well above beta,”
said a senior Sberbank executive. “It’s an emotional market reaction to geopolitics. I’m sure it’s
temporary. I just bought some more Sberbank shares today myself.”

But Sberbank is also vulnerable to sanctions against other Russian companies to which it lends.
Loans to companies on the new sanctions list — which are now barred from making payments in
dollars or accessing western markets — total “no more than 2.5 per cent” of Sberbank’s total assets,
or Rbs585bn ($9bn).

Rusal, which was sanctioned along with owner Oleg Deripaska and nearly all his other businesses,
owes about half its $8.4bn debt to Sberbank. The aluminium producer warned investors about a
potential default this week. Sberbank said the loans to the sanctioned companies were fully
provisioned.

Mr Gref, a former economy minister who worked in St Petersburg’s mayor’s office with Vladimir
Putin in the 1990s, fears sanctions could put the US and Russia on a collision course. Late last year,
he told the Financial Times that drastic US measures would be “irrational” and “make the cold war
look like child’s play”.

Yet as other Russian companies ramped up their lobbying ahead of the Treasury’s “Kremlin
Report” on oligarchs earlier this year, Mr Gref tried to use Sberbank’s popularity on the market —
where 25 per cent of its shareholders are from the US — to its advantage.

“We don’t need lobbyists. Our American shareholders do that for us,” the senior Sberbank
executive said.

Even if the US does not sanction Sberbank, the latest sanctions’ effect on the Russian economy may
inspire Washington to take further action that hurts it, according to Tim Ash of BlueBay Asset
Management.

“The message to institutional investors is now clear — you hold Russian securities at your own risk.
You have been warned,” he said.

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