What went wrong in Russia?

Lawyers in Moscow can do little to make up the huge losses suffered by their clients, as Russia's economic collapse looks set to go down in history as causing the largest single credit loss to the banking community - $100bn, according to London-based rating company Fitch IBCA.

Last September, Credit Suisse First Boston (CSFB) announced it had written off more than $250m (u152m). It is a modest sum compared to banks such as Barclays and Dresdner, which have both reported losses of more than $500m.

In reality, CSFB has probably lost more - a lot more. Banking analysts believe CSFB was the largest foreign holder in the T-bill market and may have lost billions of dollars in this area alone.

The T bills, or GKOs, were a favourite with foreign banks as they provided high yields and were apparently the safest thing in the market because they were supposedly backed by the state. When the Russian government reneged and froze GKOs in August, foreigners were left holding more than $20bn of them.

On top of the GKOs were dollar forward contracts. As the GKOs were denominated in roubles, the banks signed forwards to lock in the exchange rate when the bonds were redeemed - usually three months later.

The Russian commercial banks had been doing great business with forwards, assuming the rouble would stay inside its exchange corridor under the supervision of the Central Bank.

When the government devalued suddenly, they had to pay out on contracts that assumed an exchange rate of, at worst, about seven roubles to the dollar, when the real rate was more than 20. The Russian banks were left owing their counterparties billions of dollars.

Then there was the stock market. Share values increased by more than 160 per cent in a year, only to lose 60 per cent of their value following devaluation.

Everyone got burned, and legally there is nothing anyone can do about it.

Foreign lawyers' jobs are pretty much unaffected. In the normal course of things, the likes of CSFB could sue the commercial banks for reneging on the dollar forwards, but the GKOs can only be taken up at state level. There have been talks in London to determine how to make Russia honour its GKOs, but little progress has been made.

As for the forwards, lawyers cannot do anything. The Russian regulator is unwilling to withdraw the commercial licences of banks that are all well connected politically, despite the fact that they are effectively bankrupt.

Over the past six months banks have been busily stripping themselves of assets - turning them into shells. The largest, Unexim, is blatantly defaulting on its existing obligations, and has stopped making its Eurobond payments.

This has sent a shiver through the market. Without the backing of the Commercial Bank of Russia - the ultimate authority - the laws are meaningless. And this is something that can only be taken up with the UK government.

For in-house lawyers like Turnbull, the office is ticking over on whatever business the firm can drum up, and things will not pick up again until the government unfreezes the GKOs, forces the commercial banks to pay up, or investor confidence returns - which will not happen for at least two years.