Bank of America, Barclays, Citi and JPMorgan declined to comment.
A spokesperson for Jefferies said it was “working within global sanctions guidelines to facilitate the needs of our customers in navigating this complicated situation.”
A source close to Deutsche Bank said the bank trades bonds for customers on request only and on a case-by-case basis to better manage its Russian risk exposure or that of its non-US customers, but will not do any new business. outside of these two categories.
Blocked assets
Some $40 billion worth of Russian sovereign bonds were outstanding before Russia launched what it calls a “special military operation” in Ukraine in February. About half was held by foreign funds. Many investors have found themselves stuck with Russian assets as their value plummeted, buyers disappeared and sanctions made trading difficult.
In May, two US lawmakers asked JPMorgan and Goldman Sachs for information on Russian debt swaps, saying they could undermine sanctions. The following month, the Treasury’s Office of Foreign Assets Control banned US fund managers from buying Russian debt or stocks in secondary markets, prompting banks to withdraw.
Regulators have since taken action to help ease the pain for investors.
The Treasury provided new guidelines on July 22 to help settle default insurance payments on Russian bonds. He also clarified that banks could facilitate, clear and settle transactions in Russian securities if it helped US holders reduce their positions.
Separately, European regulators have also relaxed rules to allow investors to deal with Russian assets by allowing them to place them in so-called side pockets on a case-by-case basis.
The price of some Russian bonds has jumped as business activity resumed since late July. This could make deals more attractive to investors and also help companies that sold Russian default protection.
For example, US bond manager Pimco – which had to pay 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.
“There is emerging supply for local and external bonds for the first time in a long time,” said Gabriele Foa, portfolio manager of the Global Credit Opportunities Fund at Algebris, which tracks the Russian securities market. “Some banks and brokers are using this offer to facilitate the divestment of Russian positions for investors who want to exit.”
Reuters could not establish who was buying the bonds.
Lots of rules
Some banks offer to trade Russian sovereign and corporate bonds, and some offer to facilitate trades in bonds denominated in both rubles and US dollars, according to the documents and the investor who holds Russian securities. But they also demand additional documentation from their clients and remain risk averse.
In a research update to clients on Wednesday, for example, Bank of America said in red capital letters: “Bank of America is now facilitating the divestment of Russian sovereign bonds and selected corporate bonds.”
But he added that he would act as a “risk-free principal on client facilitation trades”, which is a situation where a broker buys a bond and sells it immediately. He also warned that there were “lots of rules around the process” that remained subject to “protocol and attestation”.
Approaches also differ from bank to bank. In some cases, for example, banks offer their clients assistance in selling their assets as well as other types of transactions that would reduce exposure to Russian assets, while others limit transactions only to transfers of assets.
Sometimes they require investors to sign documents before trades are executed that would allow banks to reverse trades if settlement does not materialize and risk leaving banks with Russian paper on their books, according to one documents and the investor.
A bank warned its customers that settlements would take longer than usual.
Reuters