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Russia is skirting sanctions ‘quite successfully.’ Meet the architect of Putin’s economic counterattack

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Russia is skirting sanctions 'quite successfully.' Meet the architect of Putin’s economic counterattack

When sanctions made the Fortress Russia he helped build seem less impregnable, Maxim Oreshkin came up with a signature gambit to try and break the economic siege.

Russia’s war on Ukraine wasn’t yet a month old and its blitzkrieg was already turning into a slog. The economic blowback was harsh, too, as the government struggled to avoid a default and the ruble went into in a nosedive.

On March 23, Vladimir Putin struck back, demanding that Russia’s adversaries in Europe pay their massive bills for its natural gas in rubles.

Oreshkin, the president’s 40-year-old economic aide, was author of the gamble to tear up contracts and upend decades of precedent, according to officials familiar with the matter. 

Since the Feb. 24 invasion, he’s emerged as a key member of Putin’s inner circle on economic policy, one of several insiders with western financial experience now helping steer the Kremlin’s response. 

“They are now busy figuring out how to get around the sanctions and are doing it quite successfully,” said Sergei Guriev, an economist who advised the government in the early years of Putin’s rule but later fled to Paris, where he’s now rector of Sciences Po. “But all the money earned goes to fund the war.”

Damage dodged

The defenses have helped the Kremlin avoid the worst of the economic damage feared when the sanctions were first imposed. Forecasters now see a contraction half as deep this year. The ruble has recovered its early losses to become a top performer as tens of billions of dollars and euros flow in for energy and other exports.

By leveraging Russia’s sway over gas supplies to Europe, Oreshkin’s ruble demand allowed Putin to appear to be fighting back against the initial sanctions onslaught. It ultimately forced the EU to back down as most of the major consumers signed up to the new terms that included the requirement to open special accounts with Gazprombank JSC, keeping the lender free of sanctions.

“I consider the effect of using the rubles-for-gas scheme to be positive,” Oreshkin told Bloomberg, declining to comment on his role in devising it. 

He has whispered rhetorical flourishes that then wind up in presidential speeches. He coined a phrase that Putin would soon repeat over and over, describing the seizure of Russia’s international reserves as in fact “a real default” by the US and European Union on their obligations to Russia.

He’s also helped draw up plans to limit the fallout as Russia’s banks are cut off from the SWIFT financial messaging service and pushed back against calls from other influential insiders for more state control as Russia’s economy grows isolated from the world Oreshkin and his allies once sought closer ties with.

Putin brought him along on a recent trip to Iran, which has decades of experience weathering western sanctions. Asked about the Islamic republic’s ideas for overcoming the limits, Oreshkin bragged, “ours are much better.”

A former banker at Societe Generale SA’s Russian unit, he’s now using his western experience to blunt the impact of sanctions. Oreshkin is part of a cadre of officials who’ve long tried to walk a fine line between crafting investor-friendly economic policy and Putin’s growing repression. 

The war has made that balancing act all but impossible, with Oreshkin and his colleagues hit with sanctions as their economic policies serve the Kremlin’s war machine.

Not ‘defensible’

“I can see exactly how somebody from the technocrats would say, ‘Here I am doing this really important thing on payment systems, on banking, this is my area of responsibility. I am maintaining stability and I am going to continue doing it,”’ said Jacob Nell, who as Russia economist at Morgan Stanley once took investors to meet Oreshkin. 

“It was defensible before Feb. 24, but it is not after,” added Nell, who is now a member of an international working group advising the US and Europe on how to design sanctions against Russia

Oreshkin is part of a bridge generation that straddled the end of the Soviet era and spent their teenage years during what became known in Russia as the tumultuous 1990s, a period of hardship and economic daring.

Thirty years Putin’s junior, he was the youngest of two sons in a family of Moscow academics, growing up a world apart from the president’s hardscrabble beginnings in postwar Leningrad.

Technocrat cohort

Oreshkin’s cohort of technocrats includes Bank of Russia Deputy Governor Alexey Zabotkin, 44, and Deputy Finance Minister Vladimir Kolychev, 39. Graduates of elite Russian economic schools, they parlayed jobs at European lenders into a stint at state investment bank VTB Capital, before winning appointments to top state roles.

Forgoing the private sector, they devoted themselves to building up Putin’s financial fortress. The harsher Putin was with critics and rivals abroad and at home, the more indispensable they became in building resiliency to sustain the economy for when the big shocks would come.

During his three-year stint at the Finance Ministry, Oreshkin was among officials who devised a mechanism to divert hundreds of billions of dollars in revenues from oil-and-gas exports into a sovereign fund to help the Kremlin weather crises like the first waves of US and European sanctions over Crimea in 2014.

Years of sanctions-proofing the economy and building up reserves weren’t enough to protect the economy after the invasion, however. The US and its allies froze much of the $600 billion in reserves that Oreshkin’s policies had helped build up. For all his efforts to divert blame, Russia failed to make debt payments and defaulted for the first time in a century. The economy isn’t doing as badly as feared in the wake of the invasion, but it’s still on track for one of the deepest recessions in decades.

Seen as a political lightweight not long ago, Oreshkin in particular has emerged as the economic right-hand man of a president at war.

“Putin still trusts our economists,” said Guriev.

As some powerful Kremlin players have pushed for reasserting state control over the economy, Oreshkin has fought back, so far successfully.

Shrill rhetoric

“Russia is not going to abandon the market economy,” Oreshkin said in reply to questions from Bloomberg. “On the contrary, it’s moving in the opposite direction. Private initiative is now especially encouraged. This is constantly noted by the president in his speeches.”

Still, he and his allies are increasingly adopting the shrill rhetoric of Russia’s once-marginal critics of western capitalism. 

Oreshkin has likened the U.S. currency to “a drug used to addict the whole world.” Aleksey Moiseev, the 49-year-old deputy finance minister and another alum of VTB Capital, has said that the intensity of sanctions amounted to the detonation of a “financial nuclear bomb.”

Rhetoric aside, the anti-crisis measures taken so far largely stick close to the playbook that draws on mainstream economics, with policy makers already dismantling capital controls used to seal off Russia after the invasion. 

That may not be enough to secure their legacy.

“What they did in the first years of their stay at the Ministry of Finance and the central bank has already been canceled,” said Konstantin Sonin, a Moscow-born economist at the University of Chicago who’s long been critical of policies under Putin. “Now their work is no different from the work of highly paid clerks in a government waging a criminal war.”

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Coinbase’s near-term outlook is ‘still grim’, JPMorgan says, while BofA is more positive about firm’s ability to face crypto winter

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Coinbase's near-term outlook is 'still grim', JPMorgan says, while BofA is more positive about firm's ability to face crypto winter

Coinbase is well positioned to successfully navigate this crypto winter and take market share, Bank of America said in a research report Tuesday. It maintained its buy recommendation following the exchange’s second-quarter results.

The results warrant “a muted stock reaction,” the report said. Net revenue of $803 million was below the bank’s and consensus estimates, while its adjusted $151 million loss before interest, tax, depreciation and amortization was better than the street expected. Importantly, the company remains “cautiously optimistic” it can reach its goal of no more than $500 million of adjusted EBITDA loss for the full year, the report added.

Coinbase shares fell almost 8% in premarket trading to $80.74.

Bank of America notes that Coinbase had no counterparty exposure to the crypto insolvencies witnessed in the second quarter. The company also has a “history of no credit losses from financing activities, holds customer assets 1:1, and any lending activity of customer crypto is at the discretion of the customer, with 100%+ collateral required.” These rigorous risk-management practices will be a “positive long-term differentiator” for the stock, the bank said.

JPMorgan said Coinbase had endured another challenging quarter, while noting some positives.

Trading volume and revenue were down materially. Subscription revenue was also lower, but would have been much worse were it not for higher interest rates, it said in a research report Wednesday.

The company is taking steps on expense management, and in addition to the June headcount reductions, is scaling back marketing and pausing some product investments, the note said.

The bank says the company’s near-term outlook is “still grim,” noting that the exchange expects a continued decline in 3Q 2022 monthly transacting users (MTUs) and trading volumes, but says Coinbase could take more “cost actions” if crypto prices fall further.

JPMorgan is less optimistic than Bank of America about the company in the near term, saying pressure on revenue from falling crypto markets will have a negative impact on the stock price. Still, it sees positives including higher interest rates, from which the firm will generate revenue. It also sees opportunities for the exchange to grow its user base, leveraging almost $6 billion of cash. The surge in crypto prices in July, and the forthcoming Ethereum Merge are also seen as positive catalysts, it added.

The bank maintained its neutral rating on the stock and raised its price target to $64 from $61.

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Elon Musk sold $6.9B in Tesla stock in case he’s forced to buy Twitter

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Elon Musk sold $6.9B in Tesla stock in case he's forced to buy Twitter

Elon Musk sold $6.9 billion of his shares in Tesla Inc., the billionaire’s biggest sale on record, saying he needed cash in case he is forced to go ahead with his aborted deal to buy Twitter Inc.

“In the (hopefully unlikely) event that Twitter forces this deal to close *and* some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk tweeted late Tuesday after the sales were disclosed in a series of regulatory filings. 

Asked by followers if he was done selling and would buy Tesla stock again if the $44 billion deal doesn’t close, Musk responded: “Yes.”

Tesla’s chief executive officer offloaded about 7.92 million shares on Aug. 5, according to the new filings. The sale comes just four months after the world’s richest person said he had no further plans to sell Tesla shares after disposing of $8.5 billion of stock in the wake of his initial offer to buy Twitter.  

Musk last month said he was terminating the agreement to buy the social network where he has more than 102 million followers and take it private, claiming the company has made “misleading representations” over the number of spam bots on the service. Twitter has since sued to force Musk to consummate the deal, and a trial in the Delaware Chancery Court has been set for October. 

In May, Musk dropped plans to partially fund the purchase with a margin loan tied to his Tesla stake and increased the size of the equity component of the deal to $33.5 billion. He had previously announced that he secured $7.1 billion of equity commitments from investors including billionaire Larry Ellison, Sequoia Capital, and Binance. 

“I’ll put the odds at 75% that he’s buying Twitter. I’m shocked,” said Gene Munster, a former technology analyst who’s now a managing partner at venture-capital firm Loup Ventures. “This is going to be a headwind for Tesla in the near term. In the long term, all that matters is deliveries and gross margin.”

At the weekend, Musk tweeted that if Twitter provided its method of sampling accounts to determine the number of bots and how they are confirmed to be real, “the deal should proceed on original terms.” 

Musk, 51, has now sold around $32 billion worth of stock in Tesla over the past 10 months. The disposals started in November after Musk, a prolific Twitter user, polled users of the platform on whether he should trim his stake. The purpose of the latest sales wasn’t immediately clear.  

Tesla shares have risen about 35% from recent lows reached in May, though are still down about 20% this year. 

With a $250.2 billion fortune, Musk is the world’s richest person, according to the Bloomberg Billionaires Index, but his wealth has fallen around $20 billion this year as Tesla shares declined.    

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The rent is too d*mn high for Gen Z: Younger generations are ‘squeezed the most’ by higher rents, BofA says

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The rent is too d*mn high for Gen Z: Younger generations are 'squeezed the most' by higher rents, BofA says

Most of Gen Z is too young to remember the 2010 New York gubernatorial candidate Jimmy McMillan.

But over a decade later, they would probably agree with his signature issue (and catchphrase): the rent is too damn high.

This July, median rent payments were 7.4% higher than during the same period last year, according to a Bank of America report released Tuesday. 

The national median price for a one-bedroom apartment has been hitting new highs nearly every month this summer. It was $1,450 for July, according to rental platform Zumper. In the country’s largest city, New York, average rent exceeded a shocking $5,000 a month for the first time ever in June. 

But inflation in the rental market hasn’t hit each generation equally, and no one is getting squeezed harder by the higher monthly payments as Gen Z. Those born after 1996 have seen their median rent payment go up 16% since last July, compared to just a 3% increase for Baby Boomers, BofA internal data shows. 
“Younger consumers are getting squeezed the most by higher rent inflation,” BofA wrote.

The great rent comeback

Early in the pandemic, landlords slashed rents and gave significant COVID discounts to entice tenants to stay instead of leaving urban areas. Once those deals started expiring in 2021, many landlords suddenly raised payments once again, sometimes asking for over double their pandemic value. 

Young people across the board have been hit hard, and rent burdens compared to age can be seen even within a single generation. Younger millennials had their median rent payment grow 11% from last year, while the median payment for older millennials rose 7%. Gen X experienced a 5% median rent increase, according to BofA. 

It’s not a surprise, then, that Gen Z feels so strapped for cash. The majority of young people, 61%, said they want to receive their wages daily instead of twice a week, a practice typically reserved for workers living paycheck to paycheck, according to a report from the Center for Generational Kinetics, which specializes in research across the generations. Rising rent inflation has even priced nearly a third of Gen Zers out of the apartment search altogether. Around 29% of them have resorted to living at home as a “long-term housing solution,” according to a June survey from personal finance company Credit Karma.

It’s no wonder—the rent really is too high.

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