Foreign banks are pressing on the exit from Russia, China's demographic turning point and half of the apartments by proxy

Four dozen Western banks cannot exit Russian assets on acceptable terms due to Putin's decree prohibiting this without government approval, writes the Financial Times. Those who are trying to agree on a way out fear that their “subsidiaries” will be taken over very cheaply by “influential Russians with close ties to the Kremlin.”

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• The FT provides a list of 45 banks from “unfriendly countries” that maintain a presence in Russia. The largest (by assets as of January 1, 2022) are Raiffeisen, Italian UniCredit and Citi.
• So far, the only example of a foreign bank successfully exiting a Russian asset after the start of the war is the sale of Rosbank to Vladimir Potanin’s Interros by the Societe Generale group. This is exactly the exception: the asset was well known to the buyer with money (Potanin at one time sold the bank to the French), but even in this case, SocGen had to write off 3.3 billion euros. “Even our competitors congratulated us on getting rid of it quickly and in an orderly manner,” a SocGen manager told FT.
• All other transactions of this kind “froze” after the release of Putin’s decree and the list of Russian credit institutions subject to a ban on transactions with shares. An exception can be made only with special permission from the President.
• HSBC, which agreed on the sale of its Russian subsidiary to Igor Kim’s Expobank just before the decree, handed over negotiations with the authorities to the buyer, writes FT. Citi has taken the path of winding down its business, and UniCredit is studying options, but does not want to simply give away the asset. What real plans Raiffeisen has is still unknown.
• People interviewed by the newspaper who are involved in the preparation of exit deals say they expect a direct ban from the Kremlin on some of them, and in some cases, demands that the price be halved. “They also claim that some initially rejected bidders have received government approval and are trying to sideline competitors,” the FT writes. “There are very influential Russians with connections to the Kremlin who are trying to use their influence to seize the assets of fleeing foreigners,” the newspaper’s source says.
• The publication does not even hint at who these “influential Russians” are, but the circle of interests should be limited to structures that are not subject to Western sanctions. Raiffeisenbank was once wooed to the same Expobank, Citibank to Uralsib, and Unicredit Bank to Interros (then free from sanctions) or investors from “friendly” countries. Arkady and Boris Rotenberg recently received real money for banking assets when they sold SMP Bank to Promsvyazbank at a very high price - for their entire capital. But these businessmen close to the Kremlin have been under sanctions for a long time, and the sale itself looked like a way out of cash.

What's in it for me?

The Ministry of Finance officially demands that Russian assets be sold at a discount of at least 50% from independent valuations from “unfriendly” companies. The same Rosbank was allegedly valued at only 0.2–0.3 capital, and the Russian authorities have no reason not to squeeze an even greater discount from the remaining ones. However, for clients of Russian subsidiaries, the prolonged uncertainty may even be beneficial: as long as foreigners remain the owners, they will most likely not be cut off from either SWIFT or international money transfer systems.

ECONOMY

China has a declining population and sluggish economic growth

2022 turned out to be not as disastrous for the Chinese economy as the pandemic year 2020, but close to it. The country's GDP grew by only 3% after a recovery of 8.1% in 2021, and these are the figures for the second half of the 1970s, even before Deng Xiaoping's reforms. However, there was no collapse in the fourth quarter after the lifting of strict coronavirus restrictions (+2.9%), which gives hope for a rebound in 2023 (Morgan Stanley predicts growth of 5.7%).

Another historical milestone is the first population decline since the famine of the early 1960s - minus 850 thousand people for China's 1.41 billion inhabitants. What demographers and economists have been talking about in recent years has happened: the generation of the “one family, one child” policy, seeing the inaccessibility of housing and quality education, does not want to give birth, and with a total birth rate of 1.3 children per woman, the irreversible decline of the aging population is a question only time. There were 4 million fewer women of reproductive age over the past year.

The demographic crisis that has finally occurred in China has profound consequences for the whole world: there are times on the horizon when the country simply does not have enough working-age population to maintain its usual growth dynamics. India is set to surpass China in terms of (very young) population this year.

What else is going on

• Half of the transactions with secondary housing in Russia in 2022 were carried out by proxy, Kommersant learned . This is an unprecedented number - they have never been more than 20% - and shows that Russian real estate was urgently disposed of by those who moved abroad, most of them residents of Moscow and the region. The share could be higher if buyers and banks trusted powers of attorney more. You can now sell an apartment remotely using an electronic signature, especially since apartments are about 10% cheaper with a power of attorney, market experts remind.
• After a series of scandals (for example, with a photo of a Vologda deputy’s New Year’s holiday in Dubai), regional authorities began to strongly recommend that officials not leave Russia at all. But so far this is not a centralized campaign, and in some regions - for example, St. Petersburg - it is not against the trips themselves, but against boasting about them on social networks.
• In December, India's purchases of Russian oil increased 33 times year-on-year and by 29% by November to 1.2 million bpd. Thanks to the huge discounts that Russia is forced to accept due to the oil embargo and price ceilings, India has become the main buyer of Russian oil, and Russia its largest supplier. The Bell explained in its evening newsletter why this does little to help the Russian budget.

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One of the most unpleasant news of the past week was the state’s plans to confiscate the property of “scoundrels” who left Russia and criticized it. “A law for scoundrels” is already being prepared, warned State Duma Speaker Vyacheslav Volodin. And this time these plans were not refuted, but supported by Senator Andrei Klishas, ​​who is important in terms of repressive lawmaking. We are sure that many “scoundrels” shuddered after reading this news. Obviously, the lists of undesirables and sanctions against them will multiply.

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