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Russia says economy takes ‘serious hits’ as isolation grows

Apple (AAPL), ExxonMobil (XOM), Ford, (F) Boeing (BA) and Airbus (EADSY)joined a list of companies closing or suspending operations in Russia in response to its invasion of Ukraine and subsequent Western sanctions, and the European branch of Russia’s largest bank collapsed following a run on its deposits.

“The Russian economy is taking a serious hit,” Kremlin spokesman Dmitry Peskov said in a call with foreign reporters. “But there is a certain margin of safety, there is potential, there are plans, works are in progress.”

Peskov was responding to a question about US President Joe Biden’s remark in his State of the Union address that Russia’s economy had been left “reeling” from sanctions.
Sberbank (SBRCY), Russia’s biggest lender, said on Wednesday it was exiting Europe, except for Switzerland, after Austrian banking regulators forced the closure of its Vienna-based European subsidiary. The European Central Bank had warned earlier this week that Sberbank Europe was likely to go bankrupt after depositors rushed to withdraw their money following the imposition of Western sanctions on much of Russia’s financial system.

Sberbank said its subsidiaries had faced “an exceptional outflow of funds and a number of security issues regarding its employees and offices,” the group said in a statement, adding that it had been prevented from releasing them. bail out by an order from the Russian central bank.

The banking sanctions are part of a broader set of measures taken by the West, on an unprecedented scale, against an economy of the importance of Russia, with the aim of cutting off the financing of the war effort of the Russian President Vladimir Putin. France estimates that $1 trillion in Russian assets have been frozen, including about half of the Russian government’s war reserves.

Moscow responded with a series of emergency measures aimed at preventing financial collapse, halting the flow of cash out of the country and preserving its foreign currency reserves. The central bank more than doubled interest rates to 20% and banned Russian brokers from selling securities held by foreigners.

More capital controls

The Russian stock exchange was closed on Monday and has not reopened since. The central bank said it would remain closed on Wednesday. The London-listed shares of Sberbank (SBRCY) plunged 83%, while those of Russia’s top oil company, Rosneft, fell 68%.

The government ordered exporters to exchange 80% of their foreign currency earnings for rubles and banned Russian residents from making bank transfers outside the country.

On Tuesday, the government said Putin was working on an executive order that would prevent foreign companies from leaving their Russian assets – a bid to stem an exodus that has accelerated this week. Putin also signed a decree prohibiting people from withdrawing more than $10,000 or the equivalent in foreign currency from the country, state news agencies TASS and RIA reported.

The central bank went further on Wednesday in its attempt to stem the flow of money out of the country. It suspended transfers abroad from accounts held by non-resident legal and natural persons in several countries. The restriction does not apply to Russian citizens.

“The conditions of the Russian financial system and the wider economy are likely to deteriorate further in the days and weeks to come, as the sanctions already announced take their toll and future sanctions add to the lasting negative shock,” he said. writes Berenberg’s senior economist, Kallum Pickering, in a research note. Wednesday.

“For the foreseeable future, Russia will remain isolated from the Western world and from major global markets.”

Oil companies are leading the corporate exodus

Russia’s energy wealth has not been directly targeted by Western sanctions, but many of the world’s biggest oil companies are leaving the country or halting new investment in exploration and field development projects.

Moscow is also finding it harder to sell shipments of Russian crude oil to traders and refineries fearful of being caught in the net of financial sanctions. Tanker operators are also wary of the risk to ships in the Black Sea.

ExxonMobil said on Tuesday it was exiting its latest project in the country, Sakhalin-1, which was billed as “one of the biggest international direct investments in Russia.” An Exxon subsidiary was the operator of the project, and the company’s decision to pull out will end its more than 25-year presence in Russia.

BP (BP), Shell (RDSA) and Norway’s Equinor all said this week that they intended to pull out of their Russian businesses with likely billions of dollars on their balance sheets. France TotalEnergies (EARLY) stopped new investments.

Apple, the world’s most valuable company, announced on Tuesday that it has stopped selling all of its products in Russia due to the invasion of Ukraine. Apple also said it has decided to limit access to digital services, such as Apple Pay, inside Russia, and to restrict the availability of Russian state media apps outside the country.

Ford announced on Tuesday that it was suspending operations in Russia, effective immediately. The automaker has a 50% stake in Ford Sollers, a joint venture with Russia’s Sollers.

Boeing suspends support for Russian airlines. A company spokesperson said on Tuesday that Boeing was suspending “parts, maintenance and technical support services for Russian airlines” and had also “suspended major operations in Moscow and temporarily closed our office in Kyiv.” .

Airbus also said it was suspending support services and the supply of spare parts to Russian airlines.

— Charles Riley, Nathan Hodge, Chris Liakos, Vanessa Yurkevich, Matt Egan and Angus Watson contributed to this report.