Aurelia Butler

By Richard Lough and Francesco GuarascioPARIS/BRUSSELS (Reuters) -The European Union agreed new sanctions against Russia and its ally Belarus that blacklist 14 more oligarchs and freezes relations with Belarus’ central bank and three top lenders there, the EU Commission said on Wednesday.The measures come on top of a barrage of other sanctions imposed on Russia and Belarus for the invasion of Ukraine and aim to further increase pressure on the two countries’ economies.The sanctions, which will become effective after publication on the EU’s official journal, freeze the assets of 14 more oligarchs linked to the Russian state.Their names have not been disclosed, but the European Commission said they concern businesspeople active in the metallurgical, agriculture, pharmaceutical, telecom and digital industries, and also their family members.One diplomat said Chelsea owner Roman Abramovich was not included in the list. The EU had previously sanctioned 26 oligarchs and businessmen linked to the Russian state over the invasion of Ukraine.A total of 160 individuals are to be added to the EU blacklist, including 146 members of the Federation Council, the upper house of the Russian Parliament. Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities linked to the invasion of Ukraine.EU exports of maritime technology to Russia will also be banned and the Russian Maritime Register of Shipping will be added to the list of state-owned enterprises subject to financing limitations.The new package clarified that crypto assets are covered by existing sanctions against Russia and Belarus, in a bid to limit their use to circumvent restrictions.With no end in sight to Russia’s bombardment of Ukrainian cities, Western governments are cranking up the pressure on Moscow.On Tuesday, U.S. President Joe Biden imposed an immediate ban on Russian oil and other energy imports and Britain announced said it would phase out the import of Russian oil and oil products by the end of 2022. Washington’s European allies are, however, more dependent on Russian oil and gas and have held back from sanctioning it.BELARUSThe new round of sanctions is particularly hard on Belarus, which the EU accuses of backing Russia’s invasion. They prohibit transactions with the Central Bank of Belarus “related to the management of reserves or assets”, and the provision of public financing for trade and investment in Belarus. This effectively freezes reserves held in EU banks in a largely symbolic move because they are estimated not to be very significant. Listing and provision of financial services to Belarus state-owned entities on EU trading venues is banned from April 12.Three Belarusian banks are also excluded from the SWIFT banking system. They are: Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, the Commission said in a statement. Similar measures had previously been imposed on seven Russian lenders.Belarusian nationals and residents will be prevented from transferring to EU banks deposits exceeding 100 euros ($110) and will no longer be able to buy euro-denominated securities.Moscow calls its action in Ukraine a “special military operation” to disarm its neighbour and dislodge leaders it calls “neo-Nazis.” Kyiv and its Western allies dismiss this as a baseless pretext for an unprovoked war against a democratic country of 44 million people.The new sanctions were drafted by the commission on Tuesday and were formally agreed at a meeting of EU ambassadors on Wednesday.($1 = 0.9110 euros) More

LONDON (Reuters) – Europe’s struggling banks entered 2022 on a wave of optimism not seen in more than a decade, with interest rates set to rise at last, the COVID-19 pandemic receding, and profits rising. The Ukraine crisis has swiftly knocked that flat.Russia’s invasion has triggered an exodus of Western companies from the country, sent commodity prices soaring, hammered the euro and even threatened a global recession, just as Europe’s lenders looked poised to re-enter growth mode.Investors had been cautiously returning to the sector, lured by cheap valuations and the prospect of excess capital set aside during the pandemic being returned as dividends and buybacks.But capital distribution plans by Italy’s UniCredit appeared to be hanging by a thread this week after it said a write-off of its Russian business would cost around 7.4 billion euros ($8.1 billion), the starkest indication yet of how the crisis is tarnishing the sector’s key appeal. The STOXX index of European banks has fallen 15% since the invasion on Feb. 24, against only a 5% fall in the benchmark STOXX index, making banking one of the worst performing sectors in the region.European banks’ shares trade at a discount of more than a third to their U.S. peers, RBC Europe calculations show, and could yet fall further, with valuations still above troughs seen in previous crises. That reflects a major change in mood in just the last few weeks. Banks’ full-year earnings reports in February reflected an upbeat tone, with lenders including HSBC, Barclays (LON:BARC) and UBS posting bumper profits, promising more shareholder payouts and citing a much improved outlook.Assessing the potential damage to individual banks is complicated, Eric Theoret, global macro strategist at Manulife Investment Management, said, because of the variety of ways they are exposed.Some have holdings of Russian bonds and shares, others stakes in Russian banks, and others still sensitivity to secondary effects on Europe’s economy.”European growth will take a hit, so will European banks exposed to Russia – that’s one of my biggest concerns,” Theoret said. Graphic: Russia’s attack on Ukraine a headwind for Europe: https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrlqogpm/banks0803.PNG French, Italian and Austrian banks have the most direct exposure to Russia, according to analysis by Citi.Those with the most to lose, via their stakes in local lenders, including UniCredit and France’s Societe Generale (OTC:SCGLY), could still cope with a complete write-off of those holdings, analysts said.Societe Generale on March 3 said it could cope with being stripped of its 15 billion euro stake in local lender Rosbank.Austrian lender Raiffeisen is looking into leaving Russia, where it is the country’s tenth largest bank by assets, Reuters reported earlier this month. Potentially more damaging for European banks in the longer run are the risks of delayed central bank rate hikes, dwindling prospects of returning excess capital to shareholders, and the threat of stagflation, whereby prices rise as growth stalls.Prior to the conflict, markets had priced in the European Central Bank’s deposit rate rising from -50 basis points (bps) to zero by year-end. They now expect only a 20bp increase, Berenberg analyst Michael Christodoulou said.That hurts banks because higher benchmark rates help them generate greater profits on the spread between rates charged on lending and those paid out to depositors.A likely freeze on corporate fundraising could also hit banks, such as Barclays and Deutsche Bank (DE:DBKGn), which have significant capital markets businesses.”Debt and equity issuance by clients will be put on hold until there is greater certainty, and this could negatively impact overall revenues in underwriting,” said Maria Rivas, senior vice president for global financial institutions at DBRS Morningstar. More

The 100 billion euro special fund for building up Germany’s armed forces, previously announced by Chancellor Olaf Scholz in response to Russia’s invasion of Ukraine, would be financed by borrowing set out in a separate law, the person added.The 2022 draft budget will be discussed by Germany’s cabinet next Wednesday, along with mid-term financial planning until 2026 and the armed forces special fund. More

The 27-nation bloc was blacklisting 160 more Russian parliamentarians and oligarchs, was banning exports of maritime navigation technology to Russia and was including crypto-assets under its punitive measures, European Commission President Ursula von der Leyen said.The EU was also targeting the banking sector in Belarus, where Russia has amassed troops it used to attack Ukraine. More

Traders in US financial markets have cranked up their bets on how high inflation will soar in the coming years, complicating the Federal Reserve’s efforts to curb rapidly rising consumer prices. On Tuesday, one market measure of how hot investors believe inflation will run climbed to its highest level since 2014. The so-called five-year, five-year forward rate — a gauge of inflation forecasts over five years, five years from today — hit 2.5 per cent. That same measure stood at 2.1 per cent before Russia’s invasion of Ukraine sent commodity prices surging.The rapid shift in inflation views comes as the price of Brent crude, the international oil benchmark, escalated to a 14-year high this week and commodities including nickel, wheat and natural gas have rocketed.“Our inflation expectations are going up and growth expectations are going down,” said Elaine Stokes, a portfolio manager at Loomis Sayles. Data due out on Thursday are expected to show that consumer prices rose at the fastest level in 41 years in February, climbing 7.8 per cent from the year before, according to a survey of economists by Bloomberg.Higher commodity prices have led investors to wager that the Fed will be forced to tighten monetary policy at a more aggressive pace than might otherwise be expected in a volatile market.In recent days, as Russia’s invasion of Ukraine has reverberated through markets, traders have lifted their expectations for US interest rate rises this year. Now, investors expect borrowing costs to rise from just above zero to roughly 1.5 per cent by December. That marks a rapid reversal from just two weeks ago, when traders had lowered their expectations — predicting that rates would reach roughly 1 per cent.

“For the duration of this year we are going to be looking at very, very high inflation in the US at every upcoming Fed meeting,” said David Mericle, an economist at Goldman Sachs. “I just don’t see them going through a meeting with inflation so far above their target and not delivering a rate hike.”Investors are also factoring in a hit from higher commodity costs as consumers and businesses face higher energy bills. Coupled with tighter policy from the Fed, which is expected to raise borrowing costs for companies and individuals, the speed of the US economic recovery could slow.That means the Fed is walking a tightrope, given the central bank is loath to push the country into recession even as it attempts to bring down inflation, Mericle added.“The Fed is going to be hiking on eggshells,” said Meghan Swiber, a rates strategist at Bank of America. More