Most U.S. Banks Wrote Off Russia’s Debts Before Default

Russia’s default on $26 billion in Soviet-era debt to commercial banks worldwide this week won’t sting top U.S. banks further since most wrote off their Russian debts months ago, economists said Wednesday.

But the move gives banks an even stronger case for denying crucial new loans to help rouse the country from its crisis, analysts and economists in London and New York said.

“Any U.S. bank is going to be extremely cautious about getting involved with Russia in the near future,” said James J. McDermott, chairman of banking analysts Keefe, Bruyette & Woods in New York. “Russia is persona non grata as a borrower.”

Russia failed Tuesday to make a $363-million cash interest payment on $26 billion worth of Soviet-era loans that must be repaid to more than 600 commercial creditors worldwide.

Bank of America, the payment agent for the lenders, on Wednesday officially declared Moscow in default on the payments, according to Dow Jones Newswires.

“An event of default . . . has occurred and has not been cured,” Bank of America wrote to fellow creditors, according to Dow Jones. A spokesman for the bank said he could not confirm the report.

Major foreign creditors now may be asked by Bank of America to either give Russia time to resolve the matter or ask for an acceleration of payments. If more than 50% of principal debt holders ask for accelerated payment, Russia would be bound to repay the full debt--a sum it doesn’t have.

Russia maintained that missing the payment didn’t constitute a default because more than 70% of debt holders agreed to accept new bonds instead of cash.