Magazine article American Banker

Commercial, Investment Banks Diverge as Russia Extends Debt-Deal Deadline

Magazine article American Banker

Commercial, Investment Banks Diverge as Russia Extends Debt-Deal Deadline

Article excerpt

By JAMES R. KRAUS The Russian government Wednesday extended to April 30 its deadline to foreign creditors for accepting its terms to restructure billions of dollars of defaulted debt. The extension came as commercial and investment banks continued to clash over the terms of Russia's restructuring offer, which had originally been scheduled to expire March 5. Among foreign creditors, most U.S. and European commercial banks are prepared to accept a payoff of less than 5 cents on the dollar for the Russian securities they hold, banking sources said. "The cupboard is bare in Russia, so we might as well take what we can get," one commercial banking source said. But investment banks in the creditor group are balking and are threatening to bring litigation against Russia, sources said. Members of this group, which includes Lehman Brothers and Credit Suisse First Boston, fear they might be sued by customers who lost money investing in Russian securities. Russia unilaterally defaulted last August on about $12 billion of short- term, ruble-denominated government securities, also known as GKOs. Around half the securities are held by foreign commercial and investment banks, foreign investors, and what is thought to be Russian investors operating through offshore accounts. The default forced big banks like BankAmerica Corp., Republic New York Corp., and Chase Manhattan Corp. to write off hundreds of millions in losses on their holdings of Russian government securities. Late last week Deutsche Bank and Chase Manhattan Corp. agreed to accept an offer by Russia to restructure its debt, triggering protests from investment banks opposed to the terms. The protests forced Deutsche Bank to relinquish chairmanship of the 19-member committee responsible for negotiating with the Russian government, creating a leadership vacuum among creditors. Banking sources said commercial banks believed they had no other option than to accept the Russian offer. "The Russians have been willing to come to the negotiating table but have few financial resources at their disposal," said Arnab Das, an emerging market analyst at J.P. Morgan & Co. Meanwhile, sources said that some investment banks want to take legal action and seize Russian assets abroad to recoup some of their losses. …

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