Open Europe Blog

As we noted in our Battle of Londongrad briefing, while the exposure of the City of London to Russia has been overdone, there are plenty of other sizeable exposures in Europe which could have people worried with regards to the stand off with Russia. Well, in fact they are worrying people and dividing the EU, as we highlighted with our scale showing the divisions on pushing sanctions on Russia.

This week has seen a spate of businesses issuing warnings over potential losses in Russia. The WSJ has a good round up here, but the key ones are:

  • Société Générale, one of the largest French banks, announced that it took a €525m write-down on its business in Russia. The loss reduced its first quarter profits by 13% and saw its stock price dip by a couple of percent (since recovered). As we noted, the exposure of French banks to Russia at $51bn is quite sizeable and could certainly cause problems if sanctions were expanded. The FT reports that the bank could face a €5.2bn loss if it was forced to write off its Russian investments.
  • Danish brewer Carlsberg has also prepared for the impact as it cut its profit and sales forecast due to uncertainty in Russia, a market which accounts for 40% of its sales and profits. It also posted a 14% decline in first quarter net revenue in Eastern Europe because of the crisis.
  • Even though issues for the financial services sector are conspicuously absent (consistent with our findings), other UK businesses were feeling the pinch, with UK based Imperial Tobacco saying that its sales in Russia have declined by 7% in the past six months and that it expects the figure for the entire year to be around 10%.
  • More generally plenty of businesses are facing declining sales and preparing for potential losses on investments in Russia, from the world’s largest brewer Anheuser-Busch InBev and Unilever PLC to smaller tech companies hit by the US arms embargo.

Russian President Vladimir Putin’s comments last night, which suggest a quite significant softening in his position, will certainly ease this pain somewhat and provide some light at the end of the tunnel (assuming his position has actually softened, which is another whole discussion for a separate post). That said though, the outlook for the Russian economy whether broader sanctions become reality or not if far from pretty (graph below from IMF forecasts).

One way or another Russia seems unlikely to be the growth market in the next few years that it was before the financial crisis.

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