As the U.S. and allies tighten sanctions on Russia and choke off investor demand for its assets, parts of Wall Street are jumping on the buying opportunity that it’s creating.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. have been purchasing beaten-down company bonds tied to Russia in recent days, as hedge funds that specialize in buying cheap credit look to load up on the assets, according to people with knowledge of the private transactions.
Banks routinely scoop up debt because clients asked them to, or because they expect to find ready buyers.
Finding ways to wager on distressed securities is standard fare on Wall Street. But doing so in the wake of Russia’s widely condemned invasion of Ukraine brings unique risks. World leaders are seeking to punish some Russian companies and cut the country off from the global financial system, and any firm perceived as working against those interests faces potential reputational damage, market watchers say.
“The whole point of the sanctions is to make them and their instruments untouchable,” said Athanassios Diplas, a veteran derivatives trader who was at Goldman Sachs during the 1998 Russian financial crisis. “I have no issues looking at arbitrage opportunities in distressed situations, like back in 1998. But this is different.”
To be sure, the sanctions on Russia haven’t outright banned trading in the assets.
Goldman Sachs is primarily asking for corporate debt from the likes of Evraz Plc, Gazprom PJSC and Russian Railways that matures within the next two years, and has made bids for Russian sovereign notes, the people said.
The purchases by banks underscore a facet of Wall Street’s longstanding culture: Trading desks are geared toward finding undervalued or mispriced assets, and their activities don’t necessarily reflect the broader view of their firm toward an asset class or nation.
Representatives for Goldman Sachs and JPMorgan declined to comment.
Russian corporate bonds denominated in foreign currencies have plunged to deeply distressed levels in recent days. The debt may soon be removed from major benchmarks, and concern is mounting that companies could miss principal payments.