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Friday, September 25, 1998 Published at 07:26 GMT 08:26 UK

Business: The Economy

Russian bank assets 'seized'

Russian banks can't pay their creditors .. in Moscow or London

Russia's banking crisis deepened when the country's second largest bank, Inkombank, confirmed that a major Western investment bank is attempting to seize its offshore assets in a court action in London. Another large Russian bank, Oneximbank, is also subject of the action.

The US investment bank, Lehman Brothers, hopes to recover about $90m from the move.

The move could trigger a widespread default of Russian private debt, forcing Western banks to write off billions of dollars of loans they made before the devaluation of the rouble on August 17.

On Wednesday, Lehman said it would take a $60m charge against earnings due to volatility in Russian markets. The company is also seeking to recover money owed to its clients.

Russian banks have been trying desperately to negotiate a deal with a committee of private banks, but have been hampered by the uncertainty over the position of their own debts - mainly short-term government bonds which the government has effectively defaulted on.

Usually, banks prefer to reach a collective agreement which will ensure an orderly repayment of at least a proportion of outstanding debt to all of them. But if the suit is successful, it might begin a scramble by other banks to grab the few remaining Western assets of the Russian banks.

Victor Gerashchenko, the new head of the Russian central bank, warned Western banks about pressing their claims too hard.

"Those who are stubborn in their greediness may end up getting nothing." he said.

Official debt also under threat

The Russian government has also indicated that it might be unable to pay its official debt without more help from the IMF.

First Vice Premier Alexander Shokhin said: "I don't want to scare people with the possibility of default on foreign debt. But we do need to count on the loyal attitudes of our partners in the international financial organisations."

Last month Russia missed a debt payment on its Soviet-era debt, and officials are scheduled to meet with the Paris club of creditors this week to discuss rescheduling that debt.

Banks on their backs

The Russian banking system has been paralysed since the crisis, as the interbank payment system collapsed.

At the weekend the Russian central bank injected 3.3 billion roubles ($200m) into the banking system to try and free up the system.

But the central bank is considering printing 40 to 50 billion roubles to help pay back wages.

That could stoke up hyper-inflation, which the bank admits could reach 300% by the end of the year, thus making rouble debts held by the banks meaningless in dollar terms.

Uncertain court case

The Lehman Brothers case, called a mareva injunction, seeks to discover whether Inkombank have concealed their assets in order to frustrate collection efforts by their creditors.

But as the case has been filed in London, it will not be enforceable under Russian law.

Inkombank is likely to argue to that its assets were frozen by the Russian central bank and therefore are not legally theirs. The Russian central bank put Inkombank's assets into administration between September 4 and 15.

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