Russian Markets Halted Again as Emergency Funding Fails to Halt Rout

Sept. 17 (Bloomberg) — Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country’s debt default and currency devaluation a decade ago.

The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.

The Finance Ministry attempted to stop the selloff by offering 1.13 trillion rubles ($44 billion) of budget funds to the country’s three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, for at least three months. That measure came as KIT Finance, a Russian brokerage, said it’s in talks to find a buyer after failing to meet some financial obligations related to repurchase agreements.

Bond Market `Closed’

“The bond market remains effectively closed and banks are reluctant to lend to one another,” said Julian Rimmer, head of sales trading at UralSib Financial Corp. in London. “The problems experienced by KIT Finance have heightened counterparty risk and reduced liquidity further.”

Finance Ministry Minister Alexei Kudrin said on state television that the decision to increase the amount of budget funds available to three state-controlled banks would “smooth over the shock changes” in the markets and enable the banks to make loans to smaller competitors.

“We must soften such shock changes connected with the market falling,” Kudrin said. “With foreign borrowing stopping, we must soften the impact with additional funds, then the situation will stabilize.”

Sberbank, eastern Europe’s biggest bank, can borrow as much as 754 billion rubles, VTB has a limit of 268.5 billion rubles and Gazprombank can get 103.9 billion rubles. About 400 billion rubles more of unspent budget funds is available to other banks.

“These are market-making banks capable of insuring the liquidity of the banking system,” the Finance Ministry said in a statement today. The government and central bank will take more measures to improve liquidity this week, the ministry said.

Sberbank dropped 2.1 rubles, or 6.1 percent, to 32.55 rubles. VTB sank 0.44 kopek, or 14 percent, to 2.73 rubles, a record low.

“The primary objective of these measures is to inject liquidity to calm nervousness,” Alexander Morozov, chief economist at HSBC Bank in Moscow, said by telephone. “Hopefully other banks will be able to get this money via the interbank market and this should prevent the rise of rates,” he said.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net

Last Updated: September 17, 2008 06:10 EDT
By Alex Nicholson and William Mauldin

Source: Bloomberg

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