What happened
Shares of many financial stocks are rising today on media reports that Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky may be open to a potential compromise that would end the fighting in Ukraine that has now ensued for 12 days. The price of oil also dipped today after a relentless march higher in recent days that saw the price of U.S. crude oil rise to about $130 per barrel.
Shares of Mastercard (MA 0.53%) traded roughly 4.5% higher in the final hour of trading, while shares of the Dutch Bank ING Groep (ING 1.58%) had jumped nearly 10%. Shares of Goldman Sachs (GS 0.17%) were up about 4.3%.
So what
Russia's invasion of Ukraine has created incredibly difficult market conditions, as the war threatens to slow global demand, and wide-ranging sanctions from the U.S. and Europe are starting to spill over and have a bigger impact globally.
Image source: Getty Images.
More specifically, the large payment processor Mastercard, along with other major card networks like Visa and American Express, recently announced that it would suspend operations in Russia in response to the conflict. Russian cardholders can still make purchases inside Russia until their cards expire, but they will not be able to use the cards for online international payments or outside of the country. Roughly 90% of credit and debit payments globally go through Mastercard and Visa cards, excluding China.
For ING Groep, the bank has about 1% of its total loan book in Russia and Ukraine, most of which is Russian exposure. In a recent disclosure, the bank said that of its roughly 5.3 billion euros' worth of total outstanding loans in Russia, about 700 million euros are being impacted by new sanctions. ING does have collateral in place but obviously the longer the conflict goes on the higher the likelihood that these loans start to go into default or become write-downs.
The investment bank Goldman Sachs also has some employees and staff in Russia, although it's not material. But Bloomberg recently reported that Goldman, among others, has been buying up bonds tied to distressed Russian companies. Anonymous sources in the article say Goldman is buying corporate debt on the steel manufacturing company Evraz, the Russian state-owned energy company Gazprom PAO, and Russian railways. If the conflict ends, Goldman could profit significantly from these investments. That's easier said than done, however. Credit default swaps suggested the likelihood of default on Russian government debt within five years is currently around 65%.
Now what
Investors should not be making investments based on the likelihood of a compromise between Russia and Ukraine. Putin has proven to be extremely unpredictable in recent weeks and this is a conflict that may still not end for a while. When investing, it's important to focus on the fundamentals of the business and its long-term prospects.
With that said, I feel somewhat optimistic about all three of these stocks. Mastercard essentially holds a duopoly on processing payments, so it's not going anywhere.
ING has an incredibly strong balance sheet with lots of excess capital to support unexpected loan losses. The bank should also benefit if the European Central Bank raises its benchmark lending rate later this year, which is still likely. And Goldman currently trades at only 8.4 times forward earnings and roughly 119% to its tangible book value, essentially its net worth, so I could see there being some long-term upside there as well.
