Investment banks are beginning to rethink their commitments to doing business in Russia. The New York Times reports that many investors believe the risks of doing business in Russia are beginning to exceed the benefits. Maybe that is what Russia intends. Once western investors have put their money in, why not push them out and take their property?
Here are some examples:
- Mechel - The Times reports that Vladimir Putin's criticism of the CEO of Mechel, a coal mining and steel company, wiped out billions of dollars of its stock market value
- BP-TNK - The CEO and other western executives of BP-TNK, BP's (NYSE: BP) joint venture in Russia, were shoved out under pressure from the government and BP's Russian partners.
- Declining stock market - The Russian stock market is down 25% in the last two months, alone.
- Evaporating investment banking business - According to the Times, "Investment banking revenue from Russia was $148 million from mid-July to now. That is down from $260 million from mid-June to mid-July."
Maybe this is just a short-term blip in a market with very high ups and downs. The Times reports that JPMorgan Chase (NYSE: JPM) and Merrill Lynch (NYSE: MER) made good money in investment banking last year, pulling in $100 million and $90 million respectively in investment banking fees in the last year. And total investment banking revenues from Russian deals grew 150% from 2005 to 2007.
These players are clearly suffering on other fronts -- such as Auction Rate Securities (ARS) -- so they may not be willing to stick around for the down-cycle in Russia. Yet the notion that Russia's leaders can personally intervene in the management of individual companies and throw out CEOs they don't like is not comforting to western investors.
It makes them question whether they act as though there's a rule of law to sucker western investors to put their money in, and then revert to a kleptocracy once their checks have cleared.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
8-15-2008 @ 12:33PM
william lindblad said...
SNAFU - situation nomal a.f.u.
There is not to great a difference between Russia & Mexico.
Russia in enjoying a great deal of properity and certainly plenty of nationalism under Putin and he has a lot of public support. Hwever, if the history book tells anything - getting into a Lenin/Hammer arrangement would not be a benefit. A good example of how far one can push is the current in Georgia. It is making others, the Balkans, Poland,etc. nervous and unlike the early 50's - today they are armed.
8-20-2008 @ 11:38AM
steve said...
I say Amen to the comments above abt Russia and Putin. It's abt time we stopped pussy-footing around this guy(s). And it was absolutely ridiculous that they put Putin on the cover of Time as Man of the Year. Talk abt encouraging the fox in the hen house. They don't seem to get the picture of fair play and cooperation and how it cld benefit them.
8-22-2008 @ 1:46PM
Beltway Greg said...
Simple, because we've gone full retard in the White House for the past eight years. All children need to be supervised and that includes the spawn of the Bush clan.
Hey I may be politically incorrect but killing 4000+ people, creating a humanitarian crisis
in Iraq, killing countless Iraqi civilians, bleeding our coffers dry by rewarding the rich and big oil, I wonder where Putin got the idea it was correct to beat the hell out of a tiny country for really no apparent reason? Must have looked in Bush' soul and saw a vacancy sign or he must have gotten ahold of some bad intelligence. I hear there's some of that going around recently. And, I'd like to say that no small countries or its citizens were killed in the making of this administration, but of course I'd be telling a lie which of course brings me back to the Bush administration.
All apologizes to Timothy Shriver and the Special Olympics which I support wholeheartedly. But in this case the term has nothing to do with a class of individuals but instead a few select individuals. People aren't given terms they earn them and in this case the term applies.
Beltway Greg
8-27-2008 @ 10:49AM
steve said...
Maybe someone can help with this. I don't quite understand the whole Afganistan thing but maybe we shld hv let Russia drive out the Taliban or whatever they were doing at the time instead of training these wackos to drive out the Russians. I suppose one of the differences is that Russia wld take over the country for good and we will get out eventually. Hopefully. Things might hv been very different now. By hindsight, fo course.