In what will be the first of many to come, ISDA today ruled that the Russian Railways are now officially in default for not paying a coupon payment because Western banks blocked them from doing so. From RT:
The International Swaps and Derivatives Association (ISDA) announced on Monday that “a Failure to Pay Credit Event occurred in respect of [Russian Railways],” which effectively puts the company in default over the payment.
Needless to say, the desire to pay those debts in Rubles was rejected by Western creditors under pressure from Brussels and Washington.
The company tried to pay the bond coupon, but the payment did not reach investors by the end of a 10-day grace period due to “legal and regulatory compliance obligations within the correspondent banking network.” This refers to sanctions placed on Russia following the launch of a military operation in Ukraine. Sanctions, among other things, blocked Russia’s accounts in the US, EU and some other countries, effectively denying Moscow an opportunity to conduct financial transactions with foreign institutions.
Thus with Russia’s first official credit default, further confirmed by the members voting on this default event who just happen to be Federal Reserve member banks, this is not a shocker (via US News):
In turn this has raised the possibility of substantial writeoffs by Western lenders to Russia.
Bank of America, Goldman Sachs International and JPMorgan Chase Bank are some of the committee members who voted “yes” to the question on whether a failure to pay event occured on these assets. The committee met on April 8.
The economic war continues with the ground war also, but now let’s all just sit back and see if there is a boomerang effect on Western banks and economies for failing to look at all the counterparty risk which may be triggered by these actions.
Because these same banks and regulators did such a good job in 2008-2009 watching out for counterparty risk, right?