Russian displays of wealth in London may be just bluster

[NEW YORK] Russian listings on the London Stock Exchange; Russians buying multimillion-dollar homes in Chelsea, on streets called Billionaires' Row; Russian children in Britain's most exclusive schools, while their parents shop at Harrods and Asprey; Russians running soccer clubs and newspapers and cellars that sell some of the world's most expensive wines.

All are purported evidence of a London so in thrall to Russian money that Britain should think twice before agreeing to any ratcheting up of the limited economic sanctions the EU and the United States have imposed since Russia's annexation of Crimea. The worry is that London, as a global financial centre, might suffer disproportionate collateral damage.

But the data suggest otherwise.

While the contribution made by Russians to London's prosperity and economic activity is significant, it is not crucial. Conspicuous Russian affluence is misleading because the wealth is concentrated in the hands of a very few. Oligarchs like Roman Abramovich, the owner of the Chelsea soccer club, draw lots of attention. But among the estimated 300,000 Russians living in Britain, few of his compatriots approach his wealth.

"The Battle of Londongrad?" scoffed Raoul Ruparel, head of economic research at Open Europe, a research house based in London. "How vulnerable is the city to sanctions on Russia?" he asked rhetorically, referring to London's financial district. "Claims that the City of London would suffer major losses in the case of financial sanctions against Russia are overblown." Absolute figures for Russian deals and purchases are large, Mr Ruparel said, "but that's because London is a huge global financial centre, and you need to put numbers in context." Russian influence is said to be felt most in London's financial markets.

Since the energy giant Gazprom became the first Russian company to list in London 18 years ago, 67 more companies have done so. But together, they make up only about 5 per cent of the total. They are roughly in line with the nationalities of other companies: 95 are from the US, 62 from India and 59 from China, according to the exchange.

Russian issuers have accounted for about US$50 billion worth of listings on London exchanges over the past decade, representing around a fifth of offerings by value in that period, according to Dealogic, a data provider. But most of that activity took place before the global financial crisis. In 2007, 14 Russian companies got London listings. Last year, there was only one: the bank and credit card company TCS Group Holding.

British banks are not highly exposed to Russia either, said Gilles Moec, chief European economist at Deutsche Bank. He estimates that they have about US$19 billion worth of exposure to Russia, including loans and securities, which represents only about 0.2 per cent of their total assets. French and Austrian banks are much more exposed than their British counterparts, he said.

From 2009 to 2013, Britain granted three-year visas to 433 Russians who invested in government bonds worth at least £1 million (S$2.09 million), allowing them to buy residency for £10 million two years later, so long as they held on to the bonds. Only the Chinese came close to the Russians, with 419 receiving such investor visas. While the figure is high, the share of Russians able to afford these visas was just 0.14 per cent of the Russians living in Britain.

Lavish lifestyles have also helped form views about stratospheric levels of Russian wealth. Yevgeny Chichvarkin, who made and lost his fortune in a mobile phone empire in Russia, came to London and, in 2012, opened a luxury wine store called Hedonism Wines in Mayfair. It sells vintage products such as Chateau d'Yquem 1811, a bottle of which set a world record for being the most expensive white wine ever sold, at £75,000.

"Meet the Russians," a television series that ran on the Fox network last year, portrayed what it described as a "jaw-dropping" world of unimaginable riches.

But among prime London residential property sales, which represent the top 5 per cent of the market, only 2 per cent of buyers last year were Russian. They spent an average of £4.5 million on their homes, according to Savills, which specialises in luxury real estate. They were far behind buyers from North America, the Middle East, China and South Asia, Savills data shows. Britons, meanwhile, accounted for roughly two-thirds of all the buyers. - NYT