With the Biden administration banning US investors from picking up Russian debt assets in a surprise announcement last week, two major Street Bankers withdrew from handling such trades.
The Impacts
According to market professionals, Goldman Sachs and JPMorgan Chase & Co wanted to get out of the debts with interested buyers after matching sellers this month.
As per Bloomberg News, JP Morgan is getting out of the deals after the U.S. Treasury Office of Foreign Assets Control announced that investors in the country were not allowed to acquire them. A Goldman Sachs spokesman said that Goldman is halting such transactions.
In a bank statement, Goldman Sachs said they were winding their activities in Russia and was consistent with the office of Foreign Assets Control (OFAC) guidelines. The bank will not conduct any client related transaction with Russian entities.
The announcement on June 6 by the Treasury Department on stepping up the financial sanctions caught the market players off guard and set off talks with their lawyers.
The previous policies from the government had allowed trading players including JPMorgan and Goldman Sachs to help the client squire cheap Russian assets in the secondary market during the time when holders were offloading their debts. Now the prohibition has stopped market platforms, but both existing debts and equity securities issued by Russian Federation entity.
Banks are known to scoop up debts regularly either because their clients tell them to do so or if they expect to get ready buyers. When the activities of JPMorgan and Goldman Sachs came to light, they said they were helping their clients to offload their holdings. The updated guidance means the investors in the U.S. can hold or sell the existing Russian debts but cannot buy new ones according to a spokesman of the OFAC.
Initially after invasion of Ukraine, bonds linked to Russia crashed even when there were no international sanctions then. However, continued trading of these securities became a contentious issue in Washington and Wall Street when Senator Elizabeth Warren alleged that the bans were undermining sanctions.
Katie porter a fellow Democrat with Warren urged Goldman Sachs and JPMorgan to share the name of the clients dealing in such securities. This demand threatened to broaden the spotlight from banks too, the larger spectrum of Hedge funds and investors who had jumped in to make quick profit.
Even during distressed times, the debt market sees vulture investors posting when price slumps, hoping for a rebound. The wagers on the debts linked to Russia had stoked debates among professionals in the industry. Banks made huge profits marketing a popular trade – where investors buy bath credit default swaps and bonds weeks after the Ukraine invasion.
