American business withdraws from Russia?
Morgan Stanley is planning to send a formal notice to the Russian central bank in the first quarter of 2019 that it will close down its banking operations in the country in the first quarter of 2020, its Russian unit said in its annual report.
Morgan Stanley announced last December that it was planning a voluntary shutdown of its banking business in Russia.
The Wall Street bank's Russian subsidiary said in the report that U.S. and European Union sanctions imposed since 2014 had made it hard for Russian businesses to access international capital markets.
"(The) impact of changes in the economy on the future results of the bank's business and its financial condition may turn out to be significant," Reuters cited the report as saying.
According to the report, Morgan Stanley will keep a consulting business in Russia, which would not require a licence.
The advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking to Vestnik Kavkaza, noted that Morgan Stanley’s withdrawal from the Russian banking sector is a manifestation of a more general trend. "In the future, we will see more event like this. Investment banks join the country's market based on the assessment of prospects, and they leave if they expect some deterioration in market conditions. On the one hand, we should not dramatize this decision, but we shouldn't ignore it either. Most likely, the remaining financial and credit institutions will focus on working with the domestic investor rather than with the international one. For these purposes, the presence of large international investment banks is not particularly required, which is why they decided to leave," he explained.
The expert described the risks faced by Western financial institutions in Russia. “These are legislative risks, as we quite often have laws changing and not always in a favorable way. The project is planned on the basis of one law, but later it has to be implemented under another one. This causes great damage to the business. A bright example is the failure to implement the promised reforms in the electric power industry, expected by serious Western investors like Siemens. There are also risks of corruption and ambiguous law enforcement. There are many risks. While the growth rates of the Russian economy were quite high, these risks they were motivated by the possibility of making a profit; but now, according to Morgan Stanley, they have become less justified," Sergey Hestanov said.
The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, agreed with Hestanov. “Morgan Stanley's withdrawal is an unpleasant development, to some extent indicative of a deteriorating investment climate. Nevertheless, one should not overestimate it, because the main segments where Morgan Stanley works are mergers, acquisitions, floating of bonds and equities. The decision to withdraw business means that there are increasingly less large transactions in Russia. Morgan Stanley's share in total volume of trading did not exceed 2%," he said.
According to the economist, Morgan Stanley's withdrawal is hardly associated with the expectation of tough U.S. sanctions against the Russian financial sector. "I think that certain risks from sanctions and other restrictive measures have had only a secondary impact on the company. Taking such decisions is a long and balanced process. Most likely, it is connected with Morgan Stanley’s view of its investment bank's future in Russia in the coming years," Alexander Abramov concluded.
Morgan Stanley is an American multinational investment bank and financial services company headquartered in New York City. Morgan Stanley is a financial services corporation that advises, originates, trades, manages and distributes capital for governments, institutions and individuals. The company operates in three business segments: Institutional Securities, Wealth Management, and Investment Management.
Morgan Stanley Group's Russian subsidiary Morgan Stanley Bank was opened in June 2005. It provides brokerage service, investment banking services, engaged in the money, currency and debt market operations.