(Bloomberg) — JPMorgan Chase & Co. has processed funds that were earmarked for interest payments due on dollar bonds issued by the Russian government and sent the money on to Citigroup Inc., according to people familiar with the matter.
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JPMorgan was the correspondent bank Russia used to send the payment to Citigroup, which is acting as payment agent on the bonds, the people said, asking not to be identified discussing a private matter. JPMorgan sent the money to Citigroup after it sought and received the required approvals from U.S. authorities on Wednesday, one of the people said.
Representatives for JPMorgan and Citigroup declined to comment.
While European bondholders of Russia’s sovereign debt have received no sign of the funds, the move spurred optimism that the bonds may be settled, sending prices higher across maturities. The implied probability of a default by Russia within the year inched lower to 57%, down from 59%, according to credit default swap pricing. Last week it was as high as 80%.
“This seems to take a technical default off the table for now,” Kaan Nazli, a money manager at Neuberger Berman in The Hague, Netherlands. “However, there is still some uncertainty over corporate debt as only a number of companies have been given leeway.”
Citigroup is the payment agent for about four dozen bonds tied to Russian companies, according to data compiled by Bloomberg. Some of those companies — including MMC Norilsk Nickel PJSC and Gazprom PJSC — have successfully made coupon payments in recent days.
But, in other cases, coupon payments may not have gone through. Citigroup this week blocked a $19.25 million interest payment sent by EuroChem Group AG, a Russian fertilizer maker, according to a person familiar with the matter. The steel and mining company Severstal warned this week that Citigroup may refrain from processing a $12.6 million interest payment due on its dollar bonds.
The drama has thrust a spotlight on banks’ back offices. The Russian Finance Ministry said it had sent the order for a $117 million interest payment on March 14 to a correspondent bank that it didn’t identify, adding that it would issue a separate comment about whether the paying agent, Citibank’s London branch, has received the payment. The ministry has said it would first try to make the payments in dollars and then use rubles if that fails.
As a correspondent bank, New York-based JPMorgan processes and clears payments and other transactions for financial institutions. In its role as payment agent, Citigroup, also based in New York, collects coupon payments from bond issuers and distributes those funds to investors.
(Updates with details including default probabilities starting in fourth paragraph.)
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