WSJ: U.S. warns banks off Russian bonds

The move, apparently the first of its kind since the sanctions went into effect, has sent Wall Street bankers scrambling to determine whether the opportunity for new business is worth the political downside of bucking the administration's warning. The rules don't explicitly prohibit banks from pursuing the business, but U.S. State Department officials hold the view that helping finance Russia would run counter to American foreign policy, The Wall Street Journal wrote.

Russia plans to issue at least $3 billion of foreign bonds — its first international issue since the U.S. and its allies imposed sanctions in 2014 following Moscow's annexation of Crimea and support for separatists in Ukraine, according to people familiar with the matter.

Russia invited European and Chinese banks to bid on the deal as well as several from Wall Street, including Bank of America Corp, Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley, the people said.

So far, there is no consensus among the Wall Street firms about whether to move ahead. Some bank officials, including at Citigroup, say they won't participate. Other banks, including Goldman and J.P. Morgan, continue to weigh their options.

Officials at the State Department and Treasury Department issued the caution in response to questions from some of the banks about whether they were permitted to arrange a bond sale for Russia.

U.S. government officials say helping Russia finance its debt would run counter to the objectives of the sanctions.

"It is essential that private companies — in the U.S., EU and around the world—understand that Russia will remain a high-risk market so long as its actions to destabilize Ukraine continue," the State Department said in a statement to The Wall Street Journal. The State Department also warned of "reputational" risks of returning "to business as usual with Russia."

Any debt arranged between the Russian government and U.S. financial-services firms wouldn't technically violate the U.S. sanctions. Executives at some of the banks, however, worry that if they participate in the current deal, Russia could then inject the funds into companies currently under sanctions. As a result, the banks could run the risk of inadvertently violating the sanctions in spirit.

Some bank officials believe they were invited to participate by the Russians partly because Moscow wanted to test this loophole, and it could turn into a foreign-policy debacle if Russia later says the sanctions are meaningless because Wall Street banks are still helping them indirectly.