The next weak link in the international financial chain could be Russia, where the exposure of U.S. banks has skyrocketed.

Since the end of Communism and demise of the Soviet Union, the Russian Federation has been striving for economic growth on the capitalist model- using borrowed capital. Mushrooming foreign debt has been the byproduct.

"We are increasingly concerned about Russia," said industry analyst Raphael Soifer of Brown Brothers, Harriman & Co. In the wake of Asia, another debt crisis would be a blow to bank stocks.

Mr. Soifer noted that Russian external debt exceeds $150 billion and is equivalent to 32% of the nation's gross domestic product. Importantly, a substantial part of this debt is due within one year.

And all-too-familiar currency pressures are simmering. So far in 1998, Russia's central bank is said to have spent $2 billion of its $18 billion in foreign currency reserves to defend its own currency.

Falling currency values helped trigger the financial cataclysm in Asia last summer.

"Although U.S. banks' exposure to Russia accounts for only a small fraction of its external debt, this exposure has grown dramatically in a very short time," said Mr. Soifer.

As of Sept. 30, 1997, cross-border exposure of all U.S. banks to Russia totaled $8.8 billion, of which six money-center banks held $8.1 billion, according to data from the Federal Financial Institutions Examinations Council. For those six banks, that represented a 250% surge from $2.35 billion as of March 31, 1997.

In fact, the banks' exposure soared an eye-popping 3,400% from yearend 1994, when the explosive growth of lending began, to Sept. 30, 1997. As of Dec. 31, 1994, the aggregate exposure was just $249 million, including $226 million for the six largest banks.

Mr. Soifer noted that $2 billion of the $8.1 billion was trade financing. The banks are BankAmerica Corp., Bankers Trust New York Corp., Chase Manhattan Corp., Citicorp, First Chicago NBD Corp., and J.P. Morgan & Co.

The resulting net exposure of $6 billion is a little more than half the exposure of the same group of banks to Korea-$11.3 billion as of Sept. 30. But it is "substantially greater than their net exposure to Thailand ($4.7 billion) or Indonesia ($4.1 billion)," Mr. Soifer said.

However, the nature of Russia's debt to U.S. banks is different than Korea's, he noted.

About 93% of the Russian loans are owed by the public sector, compared to only 2% of the Korean loans.

Under Mr. Soifer's worst-case scenario-a 35% writedown of the nontrade debt-the after-tax loss to all U.S. money-center banks would be $1.4 billion.

"While not insignificant, this pales in comparison with the amounts the market has already taken out of their share prices" as a consequence of the Asia crisis, Mr. Soifer said.

Even so, he said, "If a Russian debt crisis were to develop, share prices could come under pressure."

For BankAmerica, the worst-case loss because of its Russian exposure would be 16 cents per share. For Bankers Trust it would be $1.65 per share, although this figure does not take account of hedged positions.

Other banks have not specifically disclosed their own exposure.

The position of non-U.S. banks in regard to Russia may be far more serious, he said.

According to data from the Bank for International Settlements, Russian debt to international banks was $69.1 billion, and $150 billion to all foreign creditors, as of June 30. Of the $69 billion, $38 billion was due within one year. And Mr. Soifer cautioned that the BIS data may understate the actual exposure.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.