Russia seized the local assets of Carlsberg beer and yogurt maker Danone. It now threatens Austria’s Raiffeisen bank.
Russia Seizes Western Yogurt and Beer
As backdrop to the Raiffeisen bank story, consider the Bloomberg report, Russia Seizes Western Yogurt and Beer.
President Vladimir Putin signed a decree in April allowing for “temporary” state control over the assets of companies or individuals from “unfriendly” states — which include the US and its allies.
Sunday’s move is the second time the Kremlin has used the decree to seize assets. Previously, Russia took control of utilities owned by Finland’s Fortum Oyj and Germany’s Uniper SE.
Russia and Ukraine accounted for about 13% of Carlsberg’s total sales and about 9% of operating profit in 2021. The company employs about 8,400 people in Russia and had previously separated the operations there from the rest of the group.
Carlsberg is assessing the legal and operational consequences. Fortum last week started a process of arbitration over the April seizure. But with Russia no longer concerned about appearing fair to western investors, it’s difficult to see how much recourse these or any other multinationals will have.
Procter & Gamble, Colgate-Palmolive and Philip Morris International have also remained. Coca-Cola HBC has the largest revenue exposure to Russia among European consumer-staple companies, Morgan Stanley said, saying the regional Coke bottler gets 12% of sales from that market.
Troubles at Raiffeisen Bank
Eurointelligence comments on Raiffeisen Bank Troubles.
After Russia took over Danone and Carlsberg, what fate is awaiting Austria’s Raiffeisen bank? The US and EU’s banking authorities pressure the bank for some time now to exit Russia, but progress is slow and risks are getting higher. After some failed attempts to swap assets with Russian banks in Europe, Raiffeisen is stuck between the rock and a hard place. They still serve western clients present in Russia and face the dilemma of either being hit by sanctions from the US and the EU if they stay or a hostile takeover from the Kremlin if they were to seek an exit.
Amongst western banks, Raiffeisen is the most important bank still operating in Russia, ahead of Italy’s Unicredit, the Dutch ING and the Hungarian OTP.
Half of the western companies still present in Russia have turned towards Raiffeisen since the outbreak of the war, according to Les Echos. Not yet subject to sanctions and still connected to the Swift interbank messaging system, Raiffeisen has been a valuable interconnection between the two worlds.
The result was an increase in its assets by 36% since then. Despite losing 500,000 customers, it still has a total of 3.2m, and deposits have risen by 28% to €20.8bn for their Russian subsidiary. The number of employees rose to 9,890. Its profits for the first three months of this year were up 214% on the first quarter of last year.
Could the Kremlin do to Raiffeisen what it has done to Danone? Taking over a systemically relevant bank has more repercussions than taking over a dairy producer. The moment Russia seizes Raiffeisen’s assets, their link to Swift would be cut off. It also would cause a domino effect to all those other western companies that still rely on Raiffeisen to protect their assets. Either it is done overnight or not at all. It depends on how valuable the link to the Swift system and the presence of those remaining western companies still is to the Kremlin. The move on Danone certainly was a shock and a reminder of how precarious the situation of companies still operating in Russia is.
Weaponization of the Dollar
Neither Bloomberg nor Eurointelligence mentioned retaliation for weaponization of the dollar as the prelude to these recent beer and yogurt events.
The only possible surprise in this story is why it took so long.
At the onset of the war, the Fed, under direction of the Biden Administration, illegally seized Russia’s foreign reserves. Illegal is the correct word.
Federal Reserve Act
The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Nowhere does the act give the Fed the right or power to confiscate the reserves of sovereign nations. But that is exactly what the Fed did when it seized Russia’s US dollar reserves.
If the Fed can confiscate Russia’s reserves, who’s next?
Weaponization of Swift
Please consider the Richmond Fed article What Is SWIFT, and Could Sanctions Impact the U.S. Dollar’s Dominance?
The recent removal of Russian banks from the SWIFT messaging system has highlighted the importance of payments in supporting economies. But the weaponization of SWIFT has also left some commentators worrying about the loss of the U.S. dollar’s dominance, as it might drive banks and firms to other substitutes. This Economic Brief discusses the economics of SWIFT and explains why emigrating from the U.S. dollar may be more difficult than we thought.
The Richmond’s Fed’s assessment is self-serving. Yet, it appears accurate. Importantly the Fed even admits weaponization, the emphasis was mine.
Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US
On May 13, I commented Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US
Systemic Risk Assessment
The FDIC made a “systemic risk exception” for Silicon Valley Bank to protect depositor funds beyond its limit of $250,000 per bank account.
FDIC’s stated “insurance” is for US depositors only. But the exception to make all US depositors whole means foreign depositors bear 100% of responsibility for the collapse of SVB.
Since bond holders rate higher than unsecured depositors, and the FDIC had significant losses rated to SVB, foreign depositors may get zero cents on the dollar.
If you are a foreign depositor at any small or midsized bank, the FDIC is affirming that you better get your money out now.
What Does China Do With a Dollar That’s No Longer Risk Free?
In light of Fed actions against Russia, I pinged Michael Pettis at China Financial Markets some questions on China’s reserves on March 18, 2022.
Please consider my Pettis Q&A post What Does China Do With a Dollar That’s No Longer Risk Free? Buy Gold?
Q&A With Michael Pettis
Mish: Will China now hold more commodities and fewer dollars despite the pro-cyclical nature of it? More Euros or Yen over dollars? More gold?
Michael Pettis (emphasis mine):
1: “Given that so much of China’s “reserves” are now indirect and held by state-owned banks (all the increase since 2017) it’s hard to say what the currency composition of China’s reserves are.
2: “Officially the US dollar is still by far the biggest component, but it is slowly declining.
3: “I expect that this will continue as far as the official reserves go but, as you know, the hard part of reducing the US dollar component of your reserves is figuring out what the alternative should be, and with such high and growing reserves (once you include the indirect reserves at the state-owned banks) that is a very difficult question to resolve.”
Gold-Backed BRIC Silliness
Pettis’ comment on the hard part is precisely why all the discussion on BRICs and a new currency backed by gold or some sort of weighted or commingled currency is 95 percent hot air.
Launching a BRIC currency is, for now, somewhere between extremely difficult and impossible, in any meaningful sense.
I explain in detail in More Gold Backed BRIC Currency Silliness on Dethroning the Dollar
Thorsten Polleit, chief economist at Degussa, told Kitco, “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind.“
Marc Chandler, managing director of Bannockburn Global Forex, told Kitco: “Talk of BRICS gold backed currency seems like an echo chamber. They do not have the gold to back a currency meaningfully. Have we not learned anything from the EMU experience of monetary union without fiscal union. Color me profoundly skeptical.“
Importantly, there are no details to the BRIC announcement. The current discussion involves a “trading currency”.
A “trading currency” is a laughable construct because nations don’t trade, individuals and corporations do. It is the sum of individual and corporate actions that give rise to the concept of national trade deficits.
In essence, the proposed trading currency is a return to Bretton Woods, minus the gold, which surely will not be convertible on demand for the actual traders, individuals and corporations.
Details await. If you are honest about things, and understand trade at all, expect to be underwhelmed.
Not Now Does Not Mean Never
The demise of the current US-dollar financial system with SWIFT at the heart of it is underway. I just cannot tell you when the system crumbles, nor can anyone else.
Although the dollar avoidance the BRICs seek is much easier said than done, not now doesn’t mean never. The recognition phase has started.
Most do not realize the EU is involved even though it wants no part of the BRIC structure. Importantly, the EU’s annoyance at SWIFT is far more significant than any yapping by Brazil.
So, don’t be surprised if something truly significant starts with the EU, not the BRICs. That’s an idea I have not seen anyone else suggest.
The EU is hopping mad over US sanctions on Iran. Germany was hopping mad at Trump for threatening to sanction Gazprom. The latter point is now moot, yet still a sore point.
Regardless of where de-dollarization picks up steam, it will mark the end of global sanction madness by Trump and dramatically escalated by Biden. Bring it on.
try to sanction or isolate biggest country on earh, biggest comm. producer, and
country having biggest border w/ biggest industr. producer on earh (=china)
could only come up in heads of Ivy League graduates who never traveled outside east coast or opened geo map, or read hist book about last 500 years of europe history!!!
= russia , western money in russia
western press likes to hype how CBs got russian money in western bankabout 300+- bln $, that is true. Russia has been running positive trade balance (active account ) about $100-200 bln per year
what is missing in western press other side of coin.!!
————
Russia did not have external gov debt ( euro or $), it was about 40*50bln. nothing!
but corp $$ debt is not trivial!
it was about 500*600 bln$, and now because of sanctions western banks/companies can’t just get principal and coupons in $ or euro. it is regulated , closed out or paid out in rubles!
———
and second. hard assets!! many 100x bln $$$ invested in Russia since 1991.
again! westtern company cant just sell car making site , receive $$ and transfer out of Russia. it is regulated per each case only.
net – net Russia gained more than lost. in currency terms. but lost BIGLY tecnohology wise. but it will cause problems much later (China help aside)
alx
If I am China I would take my future worth-less (not worthless) dollars now and buy revenue producing assets. Real estate. Farm land. Toll roads, parking leases and bridges. I’d do this all over the world. Beach front (and if you think sea levels will rise) potential future beach front properties and apartments. Waste management and energy. I really wouldn’t care then what the world exchanged as currency cause I would be getting a cut of whatever it shall be. In fact If the US was smart it would have already done that with the freedom of the printing press that the US has enjoyed up to this point and will continue to do for the next 10~18 years.
Big crisis point will be when the interest on the debt that when combined with Medicare and Medicare and social security entitlements take up 100% plus of the yearly budget.
1: The yuan is no more valuable than the dollar.
2: China needs those $$$ to fight capital flight
3: The US would not let China do what you suggest even if China wanted to
=buy revenue producing assets. Real estate. Farm land. Toll roads, parking leases and bridges.
what countries? in usa? in europe?
that will be confiscated in no less than NY minute!
you did not think this out properly.
Does the investments have to be in the US or Europe? Perhaps China could pay off the 160 billion USD that Egypt owes to foreign creditors and in return get a lease on the Suez to go with the ports that they are building there. Then what will the US do if China chokes the movement of the US navy between the Med and the Gulf? They might do the same with Turkeys debt and they might invest in upgrading the Iranian oil industry or Venezuala or Cuba or Argentina etc. Can the US retaliate in any meaningful way?
China doesn’t have dollars. They have t-bills. They wouldn’t dump them. Rather they would just let them mature and not buy more t-bills with the proceeds. I think they’re doing this gradually and buying gold and/or commodities with the USD.
China can always print Yuan and buy whatever they want with it.
As soon as BRICS starts to being use by a large portion of the Global Population..
Everybody will hear ,Mish come out and and claim, he’s stunned on these turnabout about the US dollar as global reserve currency..
Several commentators on BLOOMBERG in the middle of the night when 99% of Americans are sleeping, the buzz word is “SEA CHANGE” in the status of the US dollar Reserve Currency status!!!!
“SEA CHANGE” is the buzz word the Globalist use to tell their “ELITE” allies around the world, plans are on track!!!
I believe I’ve seen that word used by Mish!!!
This argument is akin to the nuclear threat argument.
Do we turn a blind eye to (nuclear threat) murder, rape, torture or antidemocratic monopoly because we’re afraid of the reaction?
In that case, let’s stop arresting/convicting organized gang or cartel criminals, lest they react.
If the world sees Russia do it, then North Korea, China and a plethora of small dictatorships realize they too can do it.
Yes, there might be a form of de-dollarization in some parts of the world, but the alternative is far, far worse.
.
.
The problem is the application of penalties and sanctions is not very even handed. Many Western allies have done, or are doing, exactly what Russia is doing in the Ukraine and receiving Western support for doing so.
Apparently, Roosevelt said of the dictator of Nicaragua, Anastasio Somoza: “Somoza may be a son of a bitch, but he’s our son of a bitch.” In today’s context this applies to Saudi Arabia, Israel and a number of petty dictatorships all over the world, who get away with murder because it suits Western countries interests.
=Many Western allies have done, or are doing, exactly what Russia is doing in the Ukraine
actually at least Russia and Ukraine had almost 1000 years of history.
and just before 1991 it was same country for 350+ years.
can’t say anyting about USA and Iraq. for example
ouside that ancient Iraq was civlised country 2000++ years before Mayflower . see (Laws of hammurabi)
= murder, rape, torture or antidemocratic monopoly because we’re afraid of the reaction?
anything so say about Vietnam war, Iraq war, Syria occupation,. Abu graib, CIA secret prisons, Lybia rape, etc etc etc
or you just returned to mother EARTH FROM MARS?
ps
and who is we ? ‘ CIA-MI5-CNN- bush jr’ we ?
The problem is, much of the world sees the US as the boogeyman that you’re describing Russia as being.
No country has toppled more governments than the US. No country has interfered in more foreign elections than the US. The US has over 300,000 military personnel in 750 foreign military bases, but China is an aggressor because they have 8 foreign military bases.
Ukraine Russian War, is the US pure as snow? The US helped support the 2014 coup of a democratically elected and neutral Ukrainian government. Henry Kissinger said that the US did in fact promise Russia multiple times we wouldn’t expand NATO eastward, but that it’s okay we repeatedly broke it, because the promises were verbal not written.
If it’s wrong for Russia to want NATO out of Ukraine, then was it wrong for us to have wanted Soviet missiles out of Cuba? JFK put missiles in Turkey first.
Currently the US is telling China that they are not allowed to build a military base in Cuba as we have military bases encircling China.
Biden just built a new military base in Syria against Syria’s government’s wishes where we are confiscating oil and wheat.
The US left Iraq, Afghanistan, and Libya in ruins as we drone a handful of other countries.
Are we so pure?
I don’t fully understand why a gold convertible currency is such a difficult task to accomplish. As an example, taking US money supply at $20T and stated reserves of 8000 tons of gold, a fully convertible US dollar would imply a gold price of $2,500 per gram, or $77,500/oz. Put another way, $25 for 0.01g of gold. This would require massive devaluation of the currency vs gold, but long term we seem to be heading in that direction anyway. It is possible to purchase 0.1g gold ‘cash’, an example being link to gold-bank.co.uk so in this example the minimum you could practically exchange would be $250 of bills for 0.1g gold
Interestingly, using available numbers for Russian M2 and gold reserves gives a $13k/oz gold price.
The difficulty comes into play when people want to redeem the currency for gold. Then you find out they were lying about their gold reserves backing their currency.
That’s the problem. If you make it convertible then you risk running out of gold as people redeem.
Nah.
That would imply massive hyperinflation of gold, not devaluation of the dollar.
It’s about sauces and geese and ganders.
Too bad Putin isn’t going to South Africa for the 14th Brics summit but I guess he couldn’t risk it.
I wonder how many US multinationals with massive physical assets in China are sweating right now? A US/China incident over Taiwan is not exactly impossible, and there are a lot more US assets in China to seize than there are in Russia.
You have to at least consider the possibility of assets being seized on both sides in such a scenario. Maybe that is another factor that could speed up reshoring.
Many other Western firms (e.g., McDonalds) have left Russia and sold their assets, usually at severe haircuts. How the financing works without interbank relations I do not know.
They were smart enough to sell before the rouble crashed.
2: “Officially the US dollar is still by far the biggest component, but it is slowly declining.”
“Slowly at first, then suddenly”
Danone and Carlsberg should have walked away in the beginning as the smart companies did. They would have perhaps gotten a bit of money and saved a lot of headaches but it doesn’t matter because yoghurt and beer aren’t strategic materials. For the companies that stayed they now regret their bad decision. It’s too late now. Reminds me of what happened to Jewish businesses in pre-war Nazi Germany. The government then forced the owners to sell at a ridiculous price and then gave it to a well-placed Nazi official. History repeats.
You wrote:
“So, don’t be surprised if something truly significant starts with the EU, not the BRICs. That’s an idea I have not seen anyone else suggest.”
I am not sure what you are referring to. I myself haven’t heard any rumors of a significant change but maybe you know something I don’t.
“The EU is hopping mad over US sanctions on Iran. Germany was hopping mad at Trump for threatening to sanction Gazprom. The latter point is now moot, yet still a sore point.”
Since Iran is supporting Russia in a war on the EU’s border the EU is mad at Iran and not the US and Germany and the Germans have acknowledged that Trump was right on Gazprom even though they almost choked while saying it. A hell of a lot has changed in Europe these last two years. It’s a sea change.
“Danone and Carlsberg should have walked away in the beginning as the smart companies did. ”
Exactly, and there are still other companies that promised to leave, but still haven’t, namely Heineken.
Ironic you mention “Nazi” in your commnet. I don’ think you know a single fact about Russia/Ukraine, except the lies told to you by the MSM, and you are stupid enough to believe.
Here’s a few simple questions you should be able to easily answer, if you know anything about the things you attempt to speak about:
-Who was Stepan Bandera, and what is he famous for?
-Who were ‘The Tornado Battalion”?
-Who are “The Azov Battalion”, “The RIght Sektor’, “The Kraken Battalion”, and what philosophy do they all have in common?
-What nationality were the 14th Waffenn SS Division, and what are they famous for?
-What famous event occurred at Volyn, Poland?
I await your reply. Please inform us with some facts, Doug.
If you can’t answer these questions truthfully, you should just STFU about Ukraine and Russia, because all you are doing is making yourself look stupid.
My family are from Poland, and we know very well the answers to these questions. I’m sure Mish does too.
Welll?
Sure I know about these things. It’s standard Eastern European atrocities and counter-atrocities that have been going on for centuries FromBrussels. Most Eastern European countries have climbed out of that mess by joining the EU. Russia however is true to itself in continuing the tradition of atrocity-making and blaming it on others.
Maybe you are from Poland and maybe not but if you are then the great majority of Poles don’t share you love for Russia. You could be the black sheep of the family.
A lot has changed in Europe and all of it is for the worse.
Every journey starts with the fist step, and dedollarization is already many, Many steps along the way. As events unfold dedollarization will accelerate, and as the author points out, we don’t know when it gets ugly, but make no mistake, dedollarization is coming and it will be very ugly for America………Got gold?
I’ve been hanging my gold in a tree to keep it away from bears and burying my food 7 strides from the big rock to keep it away from roving motorcycle gangs in the coming hard times… am I doing it right?
Did you scatter your ammunition in hard-to-remember places throughout the woods?
“Survival of the fittest”……Charles Darwin……….Best of luck with YOUR plan Walt.
Got wampum?
If not a more fair and multi-polar system, what is the alternative?….
an elevation of the current national Fed bankster operation to the international level?
Indefensible.
The next step to weaponizing the dollar just happened. It’s called FedNow.
Excellent point Billy.
China is going to end up the big winner in all this. Our 2 biggest allies Europe and Japan haven’t grown in a decade. Europe is being over run with militant Muslims and Japan’s biggest industry, autos, is about to fall to Chinese competitors. Plus their population is aging. Our economy isn’t growing either and we’re being over run by migrants too.
China has some demographic issues too, but now that they’re allying with India, worst comes to worst, they can bring in young Indians.
China just has to sit back, wait and keep adding new allies. Time is working in their favor.
If China wants to be nice to India it will have to give up territory in the Himalayas and cut support of Pakistan and Myanmar and I don’t expect that to happen anytime soon.
India and China are now allies against the US. Don’t you read the news?
Yes I do and I haven’t seen any border agreements nor joint exercises with the Chinese Navy. If you are talking about the Brics then your definition of ally is so loose as to mean nothing.
The EU has grown in real terms in the last ten years. Because the Euro declined in that period it looks flat when you measure GDP in Dollars. That chart has been kicking around the internet lately but it doesn’t measure in Euros and doesn’t take into account the UK leaving. Here is a more accurate graph:
link to macrotrends.net
Their growth has been anemic at best. Hasn’t changed much since 2008. They’ve had a stagnant economy for a long time and it’s likely to get worse since they’re becoming uncompetitive in autos, their biggest export.
Could have been better growth but at least Europe doesn’t have the real estate disaster that China has nor is it sinking into a fetid pool of industrial waste.
Anybody with the political huevos to sue for the Fed to relinquish the funds on Russia’s behalf? Seems that the Fed threat of confiscation is relevant to both domestic and foreign interests. That power grab should be nixed. Make Congress do it.
The dollar was weaponized long time ago. A lot of financial restrictions were imposed on Adolf Hitler’s Germany, YEARS before the Second World War.
I don’t know why anyone is surprised. Russia is North Korea-ifying itself and it’ll all be run by the state soon unless they manage to lose the war rapidly.
A lot of undercurrent US and west looking for an expedited exit from Russian/Ukrainian “conflict.”
Concern brewing Xi is not just a run of the mill dictator but something more sinister along the lines of certain WWII leadership.
“May we live in interesting times.”
Sure Walt. Stop watching CNN already.
Here’s a fact for you : 80%+ of the world’s population does not give a flying toss about Ukraine (me included), and they will continue to do business with Russia, because they always have, and they like Russia, for historical reasons, that are probably beyond your grasp (hint – “colonialism”), and they couldn’t care less what you have to say about it.
Russia is not isolated, the West/NATO are becoming isolated, and that trend will only gather steam. And Russia has already conclusively defeated NATO + (42 countries), it’s just NATO and their few friends are too stupid and arrogant to realize it, or at leastt admit it publicly. Behind closed doors, they know, but they can’t say it out loud, because then every Government in those 42 countries would probably fall.
You must live in Brussels?
=Russia is North Korea-ifying itself
what?
can you even speak russian lang. or just spending too much time watching
cnn-bbc?
=unless they manage to lose the war rapidly.
american? never opened hist book in whole life?
hint: hitler, napoleon, karl12, golgen horde, crimean war , polish conquest in 17th century etc etc etc.
europen part of russia is filled w/ bodies of people who thought it was easy to conquer Russia.
read a book!
That sums it up fairly well.