MOSCOW (AP) — Russian stocks tumbled Friday as another credit rating agency put the country on notice of a possible downgrade and Visa and MasterCard stopped serving two Russian banks, a day after the U.S. ordered economic sanctions against two dozen people from President Vladimir Putin’s entourage.
Fears over Russia’s economic outlook have ratcheted up this week after Russian President Vladimir Putin signed the treaty to annex Crimea following Sunday’s hastily called referendum which overwhelmingly supported that move. The West considers the vote illegitimate.
President Barack Obama on Thursday ordered economic sanctions against nearly two dozen members of Putin’s inner circle and a major Russian bank that provides them support. Putin’s chief of staff and four influential businessmen who are believed to be Putin’s lifelong friends were among the 20 individuals sanctioned
The MICEX benchmark was down nearly 3 percent two hours into Friday trading with the companies co-owned by the Russians sanctioned by the White House leading the decline. The Russian stock market has lost than more 10 percent this month.
As Russian stocks were taking a pounding, two Russian banks including Bank Rossiya, the Russian lender which was put on the Treasury’s sanctions list, said Visa and MasterCard stopped providing services to them. U.S. officials described Russia’s 15th largest bank with $12 billion in assets as a “personal bank for senior officials of the Russian Federation.”
And clients of another Russian lender, SMP, woke up Friday to discover that they cannot use their cards. In a statement, it said Visa and MasterCard stopped providing their services to them “without prior notification.” SMP’s co-owners, Arkady and Boris Rotenberg — billionaire brothers and childhood friends of Putin — were hit by the U.S. sanctions on Thursday.
The bank, which is in Russia’s top 40 with $5 billion in assets, said it had no assets in the United States and described Visa and MasterCard’s actions as “illegitimate” because the bank, unlike its owners, was not covered by the sanctions.
Though customers in the two banks won’t be able to use cards backed by Visa and MasterCard to buy products in shops online or even withdraw cash from ATMs, the clients can get cash directly from the banks.
Russia’s central bank sought to assure that the blacklisting of Rossiya and its transactions by U.S. authorities “does not have a serious bearing on the lender’s financial stability.” However, it added that the government could “take necessary steps to support the lender and the interests of its depositors and creditors.”
President Putin joked about the officials and lawmakers hit by Thursday’s sanctions in a televised meeting on Friday and pledged to support the black-listed lender.
Describing Rossiya, which was rumored to serve nearly everyone in Putin’s close entourage, as “just an average bank,” Putin said he had never had an account there, but promised to open one “first thing on Monday.”
Amid the signs that the sanctions are beginning to impact on day-to-day life in Russia, ratings agency Fitch followed Standard & Poor’s in warning Russia that it may have its credit rating downgraded. In a statement, Fitch said it has revised down its outlook for Russia’s debt to reflect the potential impact of sanctions on Russia’s economy, a day after S&P warned of a potential downgrade too.
Fitch operates a 23-notch rating system and Russia’s BBB rating ranks ninth on that scale, two above what is considered to be junk status. Lower ratings are important because it can make a country’s borrowing costs more expensive.
“Since U.S. and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support,” Fitch said.
Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.