MOSCOW: The lawsuit by Russky Standart is prompting worries that financial analysts might soften their commentary about Russian companies, impairing the quality of investment advice.

Russky Standart, the largest consumer lender in Russia, is suing a ratings agency after an analyst publicly discussed a downgrade of the lender. The case has raised concern that financial analysts might feel pressure to soften their commentary about Russian companies.

In a lawsuit filed in February, Russky Standart, owned by Rustam Tariko, a billionaire who made his fortune in vodka, said he would seek $10 million in damages from RusRating and $10 million from an analyst who examined the bank, Yulia Arkhipova. The bank accuses Arkhipova of harming its business reputation by discussing the downgrade with a reporter.

Artyom Lebedev, chief spokesman for Russky Standart, said the lawsuit was “against the rating agency, as well as its analyst, who allowed a one-sided and groundless judgment of the banks business.”

RusRating, the countrys largest independent bank-rating agency, downgraded Russky Standart to B from B+ in December. A week later, Arkhipova told Profil, a weekly magazine, that the banks public image had been an important reason.

“Its important for any bank not only to attract clients but to keep them,” she was quoted as saying. “But once a client uses Russky Standarts services, he wont come back to them again.”

Richard Hainsworth, the chief executive of RusRating, said he believed the bank was aiming at the agency specifically over the downgrade.

“We cannot find any other explanation for this under the circumstances,” he said.

Arkhipova said Wednesday she stood by her analysis of Russky Standart, and was continuing her work. But she added that her experience had made her wary of speaking with the media.

“We are still giving commentary, still expressing our views on various economic events and indicators,” she said. “But its not us and not the bank that will make the decision in this case. Its the court, and it could go either way.”

Impartial ratings are a vital part of the investment world, because they allow investors to gauge the risk of putting money into a company, said Alexander Batchvarov, head of international structured finance at Merrill Lynch in London.

“In the West, a rating agency is considered a publication company, a statistical organization which publishes opinions,” Batchvarov said. “Their ability to express such views is protected under the laws of free speech.”

Many investors in Russia buy into companies with a rating of A-, or higher only, which could put the bank in danger of being cut off from millions of dollars in potential funding.

As a result, companies in Russia often cut ties with the rating agencies they hired to rate them.

But with RusRating, Russky Standart did not have this option, since the rating was not commissioned and was issued free of charge.

For the agencies that Russky Standart has hired to rate it, the bank has “great respect,” Lebedev, the banks spokesman, said in e-mailed comments late Wednesday. “Standard Poors, Moodys and Fitch have all adjusted the rating of our bank exclusively toward the positive.”

If a Moscow court rules against RusRating during a second hearing in the case on July 17, the rating agency will face bankruptcy, and there will be a grim precedent for objective investment analysis and freedom of speech in Russia, Hainsworth said.

Pavel Gritsevsky, a lawyer representing RusRating, said the precedent would be “fateful” if Russky Standart won. “If all experts and all analysts are under this kind of pressure, we can close the rating agencies, and not listen to any experts at all,” he said.

Other analysts said the case would be an important landmark along Russias road to becoming a mature economy.

When investment analysts “come together and agree not to be bullied, then this problem usually goes away,” said Chris Weafer, chief strategist at Alfa Bank. “Its a sign of a normal transition that emerging markets have to make.”

In a separate landmark case, the Federal Consumer Protection Agency filed a class-action suit against Russky Standart in March on behalf of dozens of the banks customers over hidden loan fees.

In addition to the 19 percent interest rate on a consumer credit, customers were being required to open separate accounts that came with extra charges amounting to 23 percent.

Oleg Prusakov, the head of the watchdogs consumer protection department, argued against Russky Standart in that case, calling the banks treatment of its clients “blatantly deceptive.”

The court sided with Russky Standart, however, citing ambiguities in the law.

Americans have grown much more pessimistic about their own future and that of the economy, according to surveys being released just as the holiday shopping season gets going.

While it is unclear how much that pessimism will influence shopping, the pollsters are finding that fewer Americans say they are planning major purchases than at any time in recent years, and that the proportion expecting the economy to create more jobs is at its lowest level since 1974. The worries bode poorly for the global economy, which relies heavily on U.S. consumers for growth.

Such concerns could be cited as an argument for the U.S. Federal Reserve to lower interest rates when its Open Market Committee meets Dec. 11, despite worries about inflation. But another survey indicates that Americans are growing more worried about the inflation outlook as well.

Notwithstanding all the doom and gloom in the surveys, Americans generally do not seem to think things are that bad at the moment. It is in response to questions about what will happen in future months that the pessimism shows up.

The Conference Board survey of consumer confidence showed a rating of 115.4 for conditions in November. That is down from a recent high of 148.5 in March, but above where the index was two years ago. But the expectations index fell to 68.7, the lowest level since early 2003, when the economy seemed to be mired in a jobless recovery after the 2001 recession.

As shown in the accompanying charts, only 2 percent of respondents to that survey said they planned to buy a new car within the next six months, the lowest figure since April 1974. The proportion saying they planned to buy a home during that period fell to 2.5 percent, a 13-year low. A lower ticket item, but one whose purchase can also be delayed, is carpet. Just 3.3 percent of Americans said they planned to buy that within six months, the lowest figure since the survey began in 1967.

Most Americans are not pessimistic, with substantial majorities saying they expect economic conditions to remain about the same. But among those who see a change coming, there are now more expecting business conditions to get worse than better and more expecting employment to fall. More Americans still think their own income will rise than expect to see it fall, but the proportion expecting a decline, 11 percent, is the highest since mid-2003.

For the home-building industry, there was some encouragement from a recent survey. The University of Michigan consumer sentiment index found that 60 percent of Americans think this is a good time to buy a home. That is well below the figure of a couple of years ago, but 10 percentage points above the low reached in 1990, during the last major period of weakness in home prices. But within that optimism are big changes. Fewer people now point to rising prices or good interest rates as a reason to buy, while the proportion who think home prices are low has leaped.

For years, India was one of the few countries in the world that ran a trade surplus with China. It was fed by China’s hunger for natural resources and the fact that, while Chinese-made goods were cheap by developed world standards, they were often beyond the means of most Indian consumers.

But all that changed last year. Chinese exports to India jumped to US$14.5 billion from just under US$9 billion in 2005 and US$6 billion in 2004. This growth propelled bilateral trade to US$25 billion in 2006, up from US$13.6 billion in 2004 and a paltry US$1 billion in 1995.

SPEEDING UP
With the consumer classes in China and India growing rapidly, big investments in infrastructure and strong demand for raw materials, bilateral trade could hit US$40 billion by 2010.

Nevertheless, given that China and India are respectively the first and second fastest growing economies in the world, they can do a lot more in terms of two-way trade. China exported US$287 billion in goods and services to the US last year. India-US trade was a lot smaller but it still came to almost US$32 billion - without including services.

The wheels are turning, though. In particular, efforts are being made to boost mutual investment, which totaled less than US$500 million between 1991 and 2006. Of that, China’s direct investment in India was US$236 million or 0.28% of total foreign direct investment in India.

“Relative to the magnitude of trade, investments do lag behind,” said Nirupama Rao, India’s ambassador to China. Rao sees a lot of room for growth due to the complimentary nature of the two economies. India’s exports to China - which totaled US$10.2 billion in 2006 - are dominated by iron ore for steel, processed cotton and yarn, plastic, precious stones and minerals. China takes these raw materials and sends back machinery, organic chemicals that feed India’s generic pharmaceuticals industry, steel and fuel.

“The character and composition of the India trade basket, however, needs changes for trade to grow even faster,” Rao said, noting that China has a stronger line in value-added exports than his country.

One case in point is textiles. India has plenty of cotton but it produces very few T-shirts. Indian cotton makes its way to Chinese manufacturers who, taking advantage of a highly disciplined workforce, then sell the finished T-shirts back to India. China’s textile exports to India jumped from US$179 million in 2004 to US$338 million in 2006.

But, at the same time, India’s cotton and yarn exports rose from US$240 million in 2004 to a huge US$905 million in 2006 - the cotton shipped to China is turned into garments that clothe consumers the world over.

This growth in bilateral trade is happening as India continues to open its doors to more foreign business, turning its back on decades of Indio-centric policy. As part of the latest budget, released on February 28, the government cut tariffs and duties while making new industries accessible to overseas investors. (See: Brick by brick: Bye-bye trade barriers)

This openness is a boon for foreign players with know-how that India needs and products India wants. Chinese companies have both.

Technology firm Huawei first entered India in 1999 and has established its largest research and development center in Bangalore, which now employs some 1,200 Indian engineers. The company has pledged to invest US$150 million in India over the next three years but it has also had to climb out of a public relations hole regarding the perception of Chinese brands.

“There was a very negative perception… that everything was cheap. You can buy it, you can use it and if it works, fine. But if it doesn’t work, you can throw it out,” said Ramdev Sharma, chief technology and marketing officer at Huawei in Gurgaon, India. “Low cost but poor quality.”

ENGAGING INDIA
Sharma is friendly and casually dressed. He is fluent with the company’s philosophy and admits that working for a Chinese firm in India can have its challenges, particularly the language barrier and the different approaches to decision-making. Top management is mostly Chinese but more and more Indians are playing important roles.