Several major Wall Street banks have begun facilitating trades in Russian debt in recent days, bank documents seen by Portal, giving investors another chance to dump assets widely viewed 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 a Russian investor holding securities and two bank sources.
Following subsequent Treasury Department guidelines in July that allowed US holders to downsize their positions, Wall Street’s biggest firms have cautiously returned to the Russian government and corporate bond markets, emails, client notes and other communications from six banks emerges as interviews with the sources.
Banks now in 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 at a meeting on Thursday. Trading Russian debt has been complicated since Russia invaded Ukraine in February
Six of Wall Street’s largest firms are now resuming trading in Russian debt
The return of Wall Street’s biggest firms, the details of the deals they offer to facilitate them, and the precautions they are taking to avoid sanctions violations are reported here for the first time.
Bank of America, Barclays, Citi and JPMorgan all declined to comment.
A Jefferies spokesman said it was “working within the framework of global sanctions guidelines to facilitate our customers’ needs to navigate this complicated situation.”
A source close to Deutsche Bank said the bank only trades bonds for clients on request and on a case-by-case basis to further reduce its Russia exposure or that of its non-US clients, but will not do any new business outside of those two categories.
About $40 billion in Russian government bonds were outstanding before Russia began a so-called “special military operation” in Ukraine in February.
About half was held by foreign funds.
Many investors were stranded with Russian assets as their values plummeted, buyers disappeared and sanctions made trading more difficult.
An exhumation process of civilians who died during the war between Ukraine and Russia in the city of Rubishne in Luhansk Oblast on Friday
Ukrainian soldiers fired on Russian troops from a tank at 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 outside her damaged home in Kramatorsk, Donetsk region on Saturday
In May, two US lawmakers asked JPMorgan and Goldman Sachs for information about trading in Russian debt, saying they could undermine sanctions.
The following month, the Treasury Department’s Office of Foreign Assets Control banned US money managers from buying Russian debt or stocks in the secondary markets, prompting banks to pull out.
Regulators have since taken steps to ease the pain for investors.
The Ministry of Finance issued further guidance on July 22 to help process default insurance payments on Russian bonds.
It also clarified that banks could facilitate, settle and settle transactions in Russian securities if it would help US holders to wind down their positions.
Separately, European regulators have also relaxed rules to allow investors to trade Russian assets, allowing them to place them in so-called side pockets on a case-by-case basis.
Prices of some Russian bonds have skyrocketed since late July with renewed trading activity.
That could make the trades more attractive to investors and also help companies that have sold protection against the Russian default.
For example, US bond manager PIMCO – which was on the hook for a payout of around $1 billion after Russia defaulted on its dollar debt in June – could now save around $300 million, one investor estimated. PIMCO declined to comment.
“For the first time in a while, there are some bids emerging for both local and external bonds,” said Gabriele Foa, portfolio manager of the Global Credit Opportunities Fund at Algebris, which follows the Russian securities market.
“Some banks and brokers are using this offer to make it easier for investors who want to exit to sell Russian positions.”
Portal could not determine who bought the bonds.
Some banks offer trading in Russian government and corporate bonds, and some offer to facilitate trading in bonds denominated in both rubles and US dollars, the documents and the investor holding Russian securities said .
But they also demand additional paperwork from customers and take no chances.
For example, in a research update for clients on Wednesday, Bank of America stated in red capitals, “Bank of America is now facilitating the sale of Russian government bonds and select corporate bonds.”
But it added that it would act as a “risk-free investor in brokerage deals,” meaning a situation where a dealer buys a bond and immediately resells it.
It also warned that there were “many rules surrounding the process” which remain subject to “protocol and attestation”.
Approaches also differ between banks.
For example, in some cases banks offer their clients to sell their holdings and other types of deals that would reduce exposure to Russian assets, while others limit trading to asset disposals.
At times they require investors to sign documents before the trade is executed, which would allow banks to cancel trades if settlement fails and banks risk leaving Russian paper on their books, according to one of the officials Documents and the investor.
A bank warned customers that settlements would take longer than usual.