The Economist Asia Edition - April 14, 2018

64 Finance and economics The EconomistApril 14th 2018

O

N APRIL 6th America imposed harsh

new sanctions on Russia in response

to its “malign activity” abroad. Rattled in-

vestors sent stocks tumbling when the

Moscow exchange reopened on April 9th.

The principal stockmarket index fell by

8.3% that day. The rouble sank sharply. Oleg

Tinkov, a banker, lost $250m, but brushed it

off with reference to a previous daily loss

of $1bn. “Being on the Russian stockmarket

is like living on a volcano,” he said.

Geopolitics drove markets through the

week. Tensions over Syria (see Middle East

section) and talk of potential sanctions on

Russian government bonds weakened the

rouble further. A fiery morning tweet from

Donald Trump threatening Russia sent

stocks tumbling again on April 11th. But

when the treasury secretary came out

against sanctions on bonds later that day,

the rouble and the stockmarket perked up.

Among the 24 people targeted by the

new sanctions are government officials

and the son-in-law of Vladimir Putin, Rus-

sia’s president. Also on the list are 14 com-

panies—including, in a first for American

sanctions against Russia, listed ones such

as those controlled by Oleg Deripaska, one

of Russia’s richest men and the boss of Un-

ited Company Rusal, the world’s second-

largest aluminium firm. Investors have un-

til May 7th to rid themselves of stocks,

bonds or holdings in several of them. All

contracts and activities with sanctioned

firms must be ended within 60 days.

Last summer Congress passed a law re-

quiring the Treasury to identify individ-

uals close to Mr Putin for potential sanc-

tions. But when the list was published in

January, it was so long as to be meaning-

less. “There was a consensus on the market

that any actions on sanctions would just

be for show,” says Natalia Orlova, the chief

economist at Alfa-Bank.

The latest measures put paid to that

idea. They make it “virtually impossible”

for Mr Deripaska to deal in the dollar econ-

omy, says Daragh McDowell of Verisk

Maplecroft, a consultancy. Rusal was

forced to tell customers to halt transac-

tions. Glencore, a giant commodity firm,

put plans for a share swap with Rusal on

hold. Its boss, Ivan Glasenberg, stepped

down from Rusal’s board.

The sanctions have sown fear and un-

certainty. The individuals affected are a

mixed bunch, including figures such as

Viktor Vekselberg and Suleiman Kerimov,

who are barons of business but hardly Mr

Putin’s closest cronies. Foreigners conclud-

ed that anyone could be next, and dumped

anything Russian. This is about the fears of

investors, ratherthan Russia’seconomic

fundamentals, says Jan Dehn of Ashmore

Group, an investment firm. He foresees a

buying opportunity.

Russia is more resilientthan in 2014,

when it went into recession after oil prices

fell and Western countries imposed sanc-

tions in retaliation for the annexation of

Crimea and the war in Ukraine. Its compa-

nies and banks have reduced their foreign-

currency debt and the rouble is free to float.

The government has plenty of foreign re-

serves to cushion most external shocks.

Russia’sturmoil has had little effect on

other emerging markets. Although it is the

fourth-biggest emerging economy, its

bonds and shares carry only a modest

weight in the benchmark indices followed

by foreign investors. By April 10thMSCI’s

popular emerging-market equity index

was higher than before the new sanctions

were announced. That may not be good

news for investors who remain exposed to

Russia. If America concludes that it can put

sanctions on Russian assets without hurt-

ing other countries, says Timothy Ash of

BlueBay Asset Management, it may be

more likely to do so again. 7

Russian sanctions

Investing on the

edge

MOSCOW

New sanctions and fears over Syria roil

Russian markets

T

HE supervisory board at Deutsche

Bank, Germany’s biggest lender, has

been sounding out replacements for its

chief executive for weeks. On April 8th it

made its choice: Christian Sewing, an ex-

perienced insider. He starts with immedi-

ate effect, replacing John Cryan, who be-

came joint chief executive in 2015 and sole

boss a year later. It is the latest in a series of

quick changes for the bank.

Mr Sewing is the first German in 16

years to serve as Deutsche’s sole boss. He is

also the first in many years without a ca-

reer in investment banking. In his 25 years

at the bank he has worked in commercial

banking, auditing and risk management,

most recently as joint head of the retail di-

vision, which he successfully slimmed

down. The appointment is seen by many

as heralding a shift in favour of retail bank-

ing, especially since Marcus Schenck, joint

head of investment banking, is also leav-

ing after being rebuffed in his efforts to ex-

pand his division.

Yet the circumstances surrounding Mr

Sewing’s elevation suggest confusion as

much as calculation. The moves were not

“a turn away from investment banking”,

insisted Paul Achleitner, the chairman of

Deutsche’s supervisory board, to Frank-

furter Allgemeine Zeitung, a daily news-

paper. Other mooted candidates, such as

Mr Schenck, Jean-Pierre Mustier of Uni-

Credit and Christian Meissner of Bank of

America, are experienced investment

bankers. Mr Achleitner comes out looking

muddled. At least one investor has called

openly for his departure. Others have

questioned his judgment.

Deutsche’s investment-banking arm

has struggled against big American com-

petitors. Analysts at Scope Ratings, a rat-

ings agency, reckon the only way forward

for that division is “drastic” cuts. But re-

turning to its roots in retail banking in its

home market is not appealing, either. It is

tricky to make money in a land of 1,600

banks where retail clients are reluctant to

borrow, especially with interest rates so

low. The structural unprofitability of Ger-

man retail means investment banking has

been “all there was” to Deutsche, says Dan

Davies of Frontline Analysts. He thinks the

bank needs to concentrate on investment

banking, not retail, in Europe, and scale

back in America. Such very different rec-

ommendations suggest that neither path

offers an obvious way forward.

If anyone can pull off a turn towards re-

tail, it should be Mr Sewing. If, on the other

hand, Deutsche opts to double down on in-

vestment banking, he may end up looking

vulnerable. Deutsche has had fourCEOsin

six years (see chart). Mr Sewingmust won-

der if his rise is a blessing or a stitch-up. 7

Deutsche Bank

Unravelling

A change at the top of Germany’s largest

lender does not solve its problems

Time at the top

Source: Company reports

CEO tenure at selected banks

2007 08 09 10 11 12 13 14 15 16 17 18

Barclays

Deutsche

Bank

Goldman

Sachs

JPMorgan

Chase

Josef Ackermann 2002-

Anshu Jain

Jürgen Fitschen

John Cryan Christian

Sewing

John Varley2004-

Bob Diamond

Antony Jenkins

Jes Staley

Lloyd Blankfein 2006-

Jamie Dimon 2006-