What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing over the past week. The russian military's progress has been a lot slower than many analysts had expected, and they still have yet to take over the capital city of kiev. But regardless of how the military situation plays out, putin is facing a much more serious problem at home. The economic sanctions imposed by western countries, including banning them from swift, will be devastating to the russian economy.

The ruble has already lost almost a third of its value versus the us dollar, despite their best efforts to restrict selling of the currency since the invasion started. The russian stock market has lost more than 35 percent of its value, as investors rapidly tried to reduce exposure to the country. Things got so bad that the moscow stock exchange suspended trading of all shares since friday february 25th, and there's no word when they will allow trading to resume. It's never a good sign when an exchange has to halt trading, especially for multiple days when trading.

Finally, resumes the market almost always opens far lower than its previous closing price because of the pent-up selling pressure, but just how bad will it get while russia can halt trading on its domestic exchange, they can't halt trading of russian assets on foreign exchanges. The e-r-u-s etf is traded on the new york stock exchange and holds 31 of the largest russian companies. Since the moscow exchange was halted, e-r-u-s has fallen by another 70. We can expect a similar decline once trading is allowed again in russia and for some individual stocks.

The declines have been even worse. Many russian companies are traded on the overly counter markets in the us, as depository receipts, they're meant to represent the same economic value as the primary listings in moscow. Gazprom was previously the largest company in russia since shares were halted. It has fallen by almost 90 percent.

Spare bank is the largest bank in russia. It has similarly lost almost 90 over the past five days and 97, since its recent highs it's hard to overstate how devastating this could be for the russian economy. Spare bank is the largest bank in russia, with two out of every three businesses having an account with them. Their assets of 500 billion dollars is worth roughly a third of russia's annual gdp.

If spare bank fails, this could be far worse than a 2008 level disaster. For the country, because spare bank plays a much bigger role in the russian economy than lehman brothers ever did for the us economy. In this video, we'll look at the likelihood of spare bank failing what it would mean for russia and whether this could expand to a global financial crisis. Spare bank dates all the way back to the 1800s and the communist government used it to operate payroll and other services during the soviet era.

After the collapse of the soviet union, it was reformed as a profit-making enterprise, but the russian government maintains a majority equity stake to this day. It is the largest bank in russia. By far with tens of thousands of branches and almost 300 000 employees. They operate no differently from any other bank.

They take deposits from consumers and lend this money out to individuals and businesses at a higher interest rate, they're very important for the russian economy, controlling about a third of total banking assets, they're also, the largest credit card issuer in russia, with about 60 market share spare Bank has always had a close relationship with the government. The current ceo hermann greff was a former economy minister of russia and a close ally of vladimir putin because of their close relationship to the putin regime, as well as their systemic importance to the russian economy. They have long been a target for western sanctions after russia's annexation of crimea, the obama administration, as well as the european union, targeted spare bank with economic sanctions. The sanctions greatly limited the ability of spare bank to access u.s capital markets for its funding needs.

However, these sanctions had very little effect. Spare bank does almost no business in the u.s and most of its capital comes from domestic russian depositors. Its stock price fell by about 40 percent, but by 2016 they had completely recovered and were making new all-time highs. Over the past few years, spare banks business has been on fire with the sanctions having almost no effect on them.

They achieved record profitability and decided to reinvest their profits to expand in new industries. They created a digital ecosystem of both financial and non-financial products, including a video streaming service called ako. A spotify type product called spare sound a food delivery service called supermarket and a ride-hailing service called city. Mobile spare bank was turning into not only the country's largest bank, but also an innovative technology conglomerate that stood to dominate the digital transition in russia.

Everything was going well for the company and at its peak in october of 2021, their share price had risen, almost five-fold since their 2011 ipo. They had a market cap of about 80 billion dollars, making them one of the most valuable companies in russia. They were so confident about their prospects that they created this comedic video for their 2020 investor day. The video showed a man dressed in a black swan costume supposed to represent the pandemic.

The black swan tried to use the pandemic to destroy spare bank, but he failed, as the bank used the pandemic as an opportunity to accelerate development of their digital ecosystem. In the end, the black swan gave up and ended up investing in spare bank stock. At this point, the company looked invincible. They survived and thrived throughout the 2014 sanctions, as well as a 100 year pandemic and throughout all this time they kept a good relationship with a putin regime which is essential to running a large company in russia.

But this all changed with russia's invasion of ukraine. In response, the us and european union announced the most punitive list of economic sanctions in modern history. The most significant of these is cutting off certain russian banks, including spare bank, from the swift international payment system. That will make it very difficult, if not impossible, for spare bank to facilitate cross-border transactions on behalf of its clients, it's also unclear how much in foreign assets spare bank owns and how they'll be able to access them.

Now they can't use swift. When people have fears about a bank's solvency, they often rush to withdraw their money from the bank as quickly as possible before it's too late. If all the depositors try to withdraw their money at once, the bank may not have enough money to pay them, even if it would have been perfectly healthy. Otherwise - and that's exactly what's happening to spare bank right now, they own a subsidiary called spare bank europe, which operates in austria, germany, hungary and a few other central and eastern european countries.

It has roughly 800 000 customers and 13 billion euros in assets over the past couple weeks. Customers of spare bank europe started rapidly withdrawing their money in the fears that the western sanctions would freeze them. On february 28th, the european central bank or ecb published an assessment saying that spare bank europe and subsidiaries are either failing or likely to fail for a bank. Failing means.

A customer comes to withdraw cash from their account and the bank doesn't have the cash on hand to repay them. The ecb said: quote spare bank europe ag and its subsidiaries experienced significant deposit outflows as a result of the reputational impact of geopolitical tensions. This led to deterioration and its liquidity position and there are no available measures with a realistic chance of restoring this position at group level and in each of its subsidiaries within the banking union. Unquote, the ecb took over control of spare bank europe and is now in the process of winding down its operations and selling off its assets.

The bank's failure was not the direct result of the sanctions. It was the result of the depositors, fearing the potential future impact of sanctions, which caused a run on the bank when a bank is failing and actively in the process of liquidation. It's not hard to see why the share price is down 97. However, it's important to note that their european subsidiary only had 13 billion of assets or roughly 3 percent of spare banks total assets.

The vast majority of spare banks business is in russia as long as there is not a bank run within russia itself, there's a good chance that spare bank will live to fight another day, while the russian regulators have yet to make any statements about spare banks. Financial position, long lines have been seen at russian atms and bank branches. Spare bank themselves said that they have seen a significant amount of outflows in a short amount of time. Also, foreign companies that had accounts with spare bank may be required to withdraw their funds to comply with the sanctions.

This further decreases their cash reserves. The russian central bank knows that commercial banks are under pressure and they recently reduced the reserve requirements by doing this they're, tacitly admitting that the banking system is crumbling and many banks would not be able to meet their requirements under the old regulations if russia's invasion of Ukraine continues there's a very real possibility that spare bank will go bust. If this happens, it would be a complete disaster for russia. The government could try to bail them out, but to do this, they may need to print hundreds of billions or even trillions of new rubles.

This will put even more pressure on the currency's value and risk sending the country into an inflationary spiral. A failure of spare bank would be disastrous for the russian economy. Tens of thousands of businesses, both big and small, rely on spare bank to borrow money and process transactions. Without spare bank, they won't be able to raise money and will be forced to scale back their operations and lay people off when lehman brothers went bankrupt in 2008, it plunged both the us and the entire global economy into the worst recession.

Since the great depression lehman brothers had 600 billion dollars of assets on his balance sheet, which represented only about four percent of america's annual gdp. At the time, spare bank has 500 billion dollars of assets, which is a little bit less in absolute terms, but is equivalent to 30 of russia's annual gdp. So spare bank is a lot more systemically important than lehman brothers ever was, of course the company hasn't declared bankruptcy yet. So this is all speculation to some extent, but with the stock price down 97.

The market is pricing in a very high probability of a bankruptcy which would completely wipe out the shareholders. Alright, guys that wraps it up for this video. What do you think about spare bank? Do you think they have any chance of survival? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.