Aurelia Butler

WASHINGTON (Reuters) -U.S. banks were well-prepared for the Western sanctions announced so far over Russia’s aggression towards Ukraine, but they are still nailing down details and worry that new measures could increase the cost and complexity of enforcing the new restrictions, lawyers and industry executives said.Russian President Vladimir Putin authorized a military operation in eastern Ukraine on Thursday in what appeared to be the start of war in Europe over Russia’s demands for an end to NATO’s eastward expansion.U.S. President Joe Biden said he would announce further sanctions on Russia on Thursday, in addition to financial measures imposed this week.The United States, the European Union and Britain on Tuesday announced new sanctions on Russia after Moscow’s recognition of two separatist regions in Ukraine. Chief among their targets: Russian banks and their ability to operate internationally.Washington imposed the harshest measures on Monday prohibiting trade and investment between U.S. individuals and the two breakaway Ukraine regions and moving on Tuesday to cut off Russia state-owned Promsvyazbank and Vnesheconombank and 42 of their subsidiaries from the U.S. financial system. The U.S. Treasury also barred trading in newly-issued Russian sovereign debt, and ordered that assets relating to a handful of Russian elites and their family members be frozen.Financial institutions are the primary enforcers of sanctions.In the past they have paid hefty fines for falling down on the job but since 2014 when countries sanctioned Russia for annexing the Crimea, banks have pulled back from the region and beefed up their sanctions compliance programs.U.S. banks spent an estimated $35.2 billion on financial crime compliance – including sanctions, anti-money laundering checks and controls against other illegal activities – in 2020 alone, according to a LexisNexis survey.As tensions in the region rose, the Biden administration was in touch with the industry for several weeks on potential measures and alerted banks ahead of Tuesday’s announcement so the industry could prepare, three industry sources said.”The new U.S. sanctions should not be hard to implement because, at least for now, the Russian bank designations are fairly discrete and, post-Crimea, U.S. and global banks have had ample time to address the nuances of these kinds of sanctions,” including identifying beneficial asset owners, said Mario Mancuso, international trade partner at Kirkland & Ellis LLP.Still, industry executives starting to implement the rules on Wednesday said they were seeking additional clarity from the Treasury on some details, most importantly the precise geographic boundaries of the breakaway territories.”Those jurisdictions are defined under Ukraine law but they may or may not be what the breakaway jurisdictions assert is within their alleged sovereignty and that may change,” said Andrew Shoyer, a partner at law firm Sidley Austin. He added that the 30-day deadline the Treasury had given companies to comply was the toughest it dishes out. A spokesman for the Treasury did not immediately respond to a request for comment.MORE TO COME The White House and other nations said Tuesday’s measures are just the start. Some additional sanctions, like expanding their scope to include more Russian banks or individuals would be relatively simple to handle.But executives flagged concerns that jurisdictions might diverge in their sanctions approach if disputes arose over how to address Russian aggression. Reuters reported last week that the U.S. and its allies are not agreed on how they should respond to non-military Russian aggressions, like identifiable cyber attacks. “I think more financial sanctions on big Russian banks are probably inevitable, and that will hurt everyone in Russia who relies on them to do business with the outside world,” said Nick Turner, a lawyer specializing in sanctions and anti-money laundering at Steptoe and Johnson in Hong Kong.”It’s hard to predict the consequences because it’s not often you see major institutions being carved out of the financial system. As far as the U.S. and E.U. banks are concerned it is the equivalent of having a major counterparty disappear, and whatever financial impact that would have would be the same.”Conflicting sanctions regimes would be more complex and expensive to implement, executives said. Another major question is whether Biden imposes “secondary sanctions” on overseas parties that do business with the underlying sanctioned entities. Those are also trickier to implement because of the complexity of identifying business ties. Some financial industry executives have also told the administration that they oppose any sanctions that would target Russia’s access to payment provider SWIFT, which is used by more than 11,000 financial institutions in over 200 countries.Such a move could hurt Russian banks but it would also be disruptive for the global payments system and make it tough for creditors to get their money back from Russia.While the White House has downplayed that option, lawmakers could pursue it. Although Congress is on recess this week, Isaac Boltansky, policy director for brokerage BTIG, said he expected lawmakers to advance legislation to challenge Russia’s action soon.”There will also be an effort to ban Russia from the international payments infrastructure SWIFT, but there are concerns that doing so could harm Russian creditors awaiting funds,” he added. More

WASHINGTON (Reuters) – U.S. Federal Reserve officials agree inflation is too high and that interest rates should be increased at the upcoming meeting in March.But if everyone seems a “hawk” for now, determined to bring down the highest inflation rates in 40 years, the 14 policymakers currently participating in Fed debates still have different ideas about the risks the U.S. economy is facing and how quickly the central bank needs to raise interest rates and take other steps to tighten credit.The “doves” haven’t gone away.Rather, they are keeping a wary eye on how quickly inflation may slow, and how employment, wages and economic growth respond to rising interest rates. Depending on how these play out as the year progresses, the natural tension between hawks and doves may reemerge.Indeed what distinguishes a Fed dove from a hawk these days is more a matter of nuance – a bit more faith, perhaps, that world supply chains will get sorted and ease inflation, or, on the other side, a bit more willingness to raise rates faster now just in case they don’t. Fed hawks and doves – https://graphics.reuters.com/USA-FED/HAWKSANDDOVE/byprjeokgpe/chart.png It’s captured perhaps most vividly in the divide between a Charles Evans, president of the Chicago Federal Reserve, betting the Fed will get away with “less ultimate financial restrictiveness” than in prior years, and a James Bullard, head of the St. Louis Fed, thinking the Fed will have to carry more of the load in inflation control and that “it’s important to get moving.” Fed officials are also drawing lines around what to do with its stash of asset holdings, with some saying that outright sales of the portfolio might be needed as a way to further tighten financial conditionsWHY ARE INTEREST RATES RISING?Yet even Evans agrees the Fed’s current policy is “wrong-footed” given that consumer prices are rising 7% annually. The Fed aims to hold inflation to 2%. While the central bank uses a slightly different measure for its inflation target, that too has been running far above the Fed’s comfort zone.Monetary policy, meanwhile, remains at full throttle, stoking an economy that at present has no shortage of cash to spend and no lack of desire to spend it. The target interest rate remains near zero, where it was set at the start of the global coronavirus pandemic to fight a sharp economic downturn. While the Fed has curbed the pace of its monthly bondbuying – aimed at stabilizing financial markets and keeping borrowing rates low – there is no firm plan yet to shrink the nearly $9 trillion in government securities the central bank now holds. Fed policy rate and inflation hit a record gap – https://graphics.reuters.com/USA-ECONOMY/FEDFUNDS/movandmydpa/chart.png Given the situation, increases in the Federal Reserve’s target interest rate are inevitable, and will likely be approved in quarter point increments at the next several Fed meetings. As the Fed raises its policy rate, other interest rates tend to rise as well. Home and auto loans become more expensive as a result. Companies may pay more to finance their operations.In theory that all helps slow the pace of price increases.Both hawks and doves will be watching. The COVID inflation surge – https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png More

LONDON (Reuters) -Rolls-Royce Chief Executive Warren East will step down by the end of the year after steering the aero-engine maker through the worst of the pandemic, though fresh challenges loom following Russia’s invasion of Ukraine. Shares in the British group, which also has defence and energy businesses, dropped 16% to a seven month low in early Thursday trade as weaker-than-expected 2021 earnings, East’s upcoming departure and geopolitical risks spooked investors. Rolls-Royce (OTC:RYCEY) burned through 5.5 billion pounds ($7.4 billion) of cash during the pandemic as its airline customers stopped or cut back flights. But East, who took the helm in 2015, delivered cost cuts of 1.4 billion pounds a year ahead of schedule. That, along with a recovery in civil aviation, helped cash flows turn positive in the third quarter of last year, and the CEO forecast 2022 as a whole would be modestly positive.Still, East warned geopolitical uncertainty after Russia’s invasion of Ukraine was “fundamentally bad.”From a Rolls-Royce perspective, Russia is less than 2% of total revenue, he said, but about 20% of its titanium comes from the country. “We have been prudently building stocks as the situation has been developing over months,” he told reporters.After the cost cuts, East said a more efficient civil aerospace business was well placed for recovery. “It’s poised for future growth as international travel rises. And it is rising: large engine flying hours rose 57% year-on-year in the second half of 2021,” he said.The end of 2022 was the “right time” to hand over to someone else, he said, adding he would leave Rolls-Royce operationally and strategically in a “much better place”.Underlying operating profit of 414 million pounds contrasted with a restated loss of 2 billion pounds in 2020, but fell short of analyst’ expectations of 597 million pounds.Free cash outflow of 1.44 billion pounds beat market expectations, however, and was also well ahead of the outflow of 4.18 billion pounds in 2020.($1 = 0.7430 pounds) More

LONDON (Reuters) -Prime Minister Boris Johnson said Britain and its allies would unleash a massive package of economic sanctions to hobble the Russian economy after the Kremlin launched an all-out invasion of neighbouring Ukraine on Thursday.Western nations are expected to announce coordinated sanctions after earlier this week imposing a limited initial package that was criticised by some as a weak response to Russia’s recognition of two breakaway regions in Ukraine. “Today, in concert with our allies, we will agree a massive package of economic sanctions designed in time to hobble the Russian economy,” Johnson said in a televised address to the nation.He said the West must end its reliance on Russian oil and gas which had given Russian President Vladimir Putin a grip over Western politics.”Our mission is clear: diplomatically, politically, economically, and eventually military, this hideous and barbaric venture of Vladimir Putin must end in failure.” In earlier comments on Twitter (NYSE:TWTR), the British leader called the invasion a “catastrophe” for Europe, and said he would talk to other G7 group of rich nations. “I will also speak to fellow G7 leaders and I am calling for an urgent meeting of all NATO leaders as soon as possible,” he said.Foreign minister Liz Truss said she had summoned the Russian ambassador to explain Moscow’s actions in Ukraine.Britain, like the United States and European Union, had threatened to impose tougher sanctions on Russia if it invaded Ukraine, a move Russian President Vladimir Putin had earlier said Moscow would never do.On Wednesday, Johnson told finance chiefs he wanted to impose the “toughest possible next tranche” of sanctions on Russia, an action he described as being able to “make a difference and change the outcome”.In his address on Thursday, he told Russians he did not believe the invasion was being carried out in their name, while he vowed to support Ukraine until the flame of freedom “burns bright again”.”I don’t believe that the Russian dictator will ever subdue the national feeling of the Ukrainians and their passionate belief that their country should be free,” he said.”I say to the British people, and all who have heard the threats from Putin against those who stand with Ukraine: We will of course, do everything to keep our country safe.” More

FRANKFURT (Reuters) -Wintershall Dea, one of the co-funders of Gazprom (MCX:GAZP)’s Nord Stream 2 gas pipeline, on Thursday said cancelling the project on political grounds would enable its operator to lodge compensation claims.The group’s remarks come as Moscow launched an invasion of Ukraine only days after Germany pulled the plug on certifying the pipeline in a first wave of sanctions on Russia, where Wintershall Dea has been active for more than three decades. The Germany-based oil and gas firm, which is co-owned by BASF and Russian billionaire Mikhail Fridman’s LetterOne investor group, on Thursday cancelled its annual press conference in light of current events.”The latest military escalation also shakes the economic cooperation between Russia and Europe that has been built up over decades and will have far-reaching consequences,” CEO Mario Mehren said in a statement.”To what extent cannot yet be foreseen.”Wintershall Dea along with Uniper, Shell (LON:RDSa), Engie and OMV is one of the financial backers of Nord Stream 2.It has previously said its loan payments to the project amounted to 730 million euros ($821 million).Uniper, whose shares hit a 14-month low on Thursday, a day earlier said it was assessing whether the pipeline’s suspension would trigger impairments on its 1 billion euro exposure to the project.”Should the commissioning of Nord Stream 2 be prevented by political intervention, we assume that the project company will be able to enforce compensation claims,” the company said in its annual report, referring to pipeline operator Nord Stream 2 AG.”Currently, Wintershall Dea sees no reasonable scenario in which there will be political intervention without compensation,” it added.German Chancellor Olaf Scholz earlier this week revoked a security assessment by the country’s Economy Ministry, saying a new one was needed in light of current events and effectively suspending the pipeline for the foreseeable future.Wintershall Dea said that even if the certification process by the German regulator was delayed it expected Nord Stream 2 to fulfil its contractual obligations towards its financial investors, without elaborating.”I appreciate your understanding that today is not a day to discuss hypotheticals and unknowns,” Wintershall Dea finance chief Paul Smith told analysts on Thursday after presenting the company’s full-year results.He said instead of a questions-and-answers session that is typical for this sort of investor call, the group would set up individual calls in the coming weeks “as and when there is some greater clarity around the events which are unfolding as we speak and we can deal with facts, rather than speculation”.($1 = 0.8895 euros) More

BRUSSELS (Reuters) -European Union leaders will impose new sanctions on Russia, freezing its assets, halting its banks’ access to European financial markets and targeting “Kremlin interests” over its “barbaric attack” on Ukraine, senior officials said on Thursday.An emergency summit starting at 1900 GMT will also discuss offering EU candidate status to Ukraine, Lithuania’s President Gitanas Nauseda said, a step Kyiv has long called for, though it may not win approval from all EU leaders.Russian forces fired missiles at several cities in Ukraine and landed troops on its coast on Thursday, officials and media said, after President Vladimir Putin authorised what he called a special military operation in the east.”President Putin is responsible for bringing war back to Europe,” European Commission chief Ursula von der Leyen said, adding that the EU would hold him accountable.”With this package, we will target strategic sectors of the Russian economy by blocking their access to key technologies and markets,” she said in an emergency statement. “We will weaken Russia’s economic base and its capacity to modernise.Russian assets in the EU would also be frozen and Russian banks’ access to the European financial market would be stopped.However, cutting Russia off the SWIFT global interbank payments system – one of the toughest, non-military sanctions the West could impose – is unlikely to be agreed at this stage, several EU sources said. The EU approved a first round of sanctions on Wednesday, including blacklisting Russian politicians and curbing trade between the EU and two breakaway regions of eastern Ukraine whose independence Putin has recognised.The new measures, to be discussed at the evening summit of national EU leaders, will be “the harshest package of sanctions we have ever implemented”, the bloc’s foreign policy chief, Josep Borrell, said. “This is among the darkest hours for Europe since the end of World War Two … Russia’s leadership will face unprecedented isolation.”The EU will also prepare a new aid package for Ukraine, he added. “We will also be active in supporting evacuation operations, including our own staff in zones affected by this Russian attack,” he said.Shortly after Putin spoke in a televised address on Russian state TV, explosions could be heard in the pre-dawn quiet of the Ukrainian capital of Kyiv. Gunfire rattled near the capital’s main airport, the Interfax news agency said, and sirens were heard over the city. More