L.A.’s financial businesses have been generally less exposed to repercussions from Russia’s invasion of Ukraine compared to their East Coast counterparts, but some local companies are feeling the impacts.
“A lot of big banks do business in Eastern Europe, but it’s the European banks that have the most exposure, less so in the U.S., and certainly much less for Los Angeles-based financial institutions.” said Dean Kim, head of product research at William O’Neil + Co. Inc.

“Institutions in Los Angeles overall have very little exposure.”
That’s because banks headquartered in Southern California have a regional focus compared to globally focused competitors in New York and Washington, Kim said. Significant institutional investors that withdrew from Russian markets in the wake of the 2014 invasion of Crimea seemingly never returned.

The downtown-based Capital Group investment house wrote in a March 7 statement of support for Ukraine that the financial services company had suspended purchases of Russian securities “across all our investment strategies and implemented controls in support of the sanctions against Russia.

“We are committed to providing our clients with timely information about the impact of the crisis on their investments,” the company wrote. “Our overall exposure to Russian securities, in both equity and fixed income, represents a tiny fraction — less than 0.01 percent of our total assets under management. In those portfolios that hold Russian securities, our positions are small.”

The company said its portfolio managers are reviewing options to manage exposure to Russian securities, “consistent with available liquidity and our clients’ interests.”
Kim said most major L.A. investment houses have similarly low involvement in Eastern Europe.

 

Entertainment exodus

Hollywood is stepping back its involvement in Russia, with The Walt Disney Co. announcing March 10 that it was pausing the release of theatrical films in the country and “reviewing the rest of our businesses there” in light of the escalating humanitarian crisis.

“We are taking steps to pause all other businesses in Russia. This includes content and product licensing, Disney Cruise Line activities, National Geographic magazine and tours, local content productions and linear channels,” the company wrote in its statement.

“Some of those business activities we can and will pause immediately. Others – such as linear channels and some content and product licensing – will take time given contractual complexities.”
Other sectors are affected, too, of course.

Local oil and gas producers are benefiting from the upswelling in oil prices that started a year ago but surged since the war. California Resources Corp. of Santa Clarita, for example, has seen its stock gush from the $25 to $26 range in late July to $44 to $45 last week, an increase of about 75 percent.
Though the state doesn’t rely on Russian oil, global energy and agribusiness expert Shon Hiatt said it’s feeling the same squeeze on oil as that felt nationwide, along with a double dose of state and federal regulations significantly limiting the state’s green and fossil fuel production.

“The problem here is the track we’re taking (toward limiting oil and gas production). You can see what Europe is now experiencing, and we’re on the track to follow. We are losing our energy independence,” said Hiatt, a professor of management of organization at USC Marshall School of Business, noting he expected gasoline prices at pumps in the state to spike through the year and potentially beyond. “And it’s being driven more by ideology than pragmatism.”

Hiatt said regulations, particularly those imposed by the state, have strongly favored wind and solar energy over alternative renewable sources like geothermal or modular nuclear technologies. At the same time, he said the state’s increasingly disincentivized fossil fuel production is failing to keep pace with consumption.

“They had this idea that we could simply jump off the fossil fuel boat, but we’re not there yet,” said Hiatt.

 

Renewed renewables

The ban on imports of Russian gas and oil has supercharged the media push toward renewable energies. That could prove a boon for Southern California’s many renewable energy companies.
Hiatt said the renewed renewables push could likely be to the long-term benefit of electric vehicle automakers, highlighting his optimistic outlook on the Irvine-based Rivian Automotive Inc.

“Rivian’s doing great, but even the ones that have been doing great have had to slow down as a result of these supply chain issues,” said Hiatt.
L.A.’s green tech industry stocks seem to be enjoying some immediate benefit.

The Pasadena-based engineering and sustainability consulting firm Tetra Tech Inc.’s stock declined to $133 a share in late January, as Russia was amassing troops near the border of Ukraine. It’s been on a rise since the invasion’s start, closing March 22 at $166, an increase of 25 percent.
The significant rise came despite potential complications for Tetra’s Ukrainian operations. In 2018, the company was awarded a five-year contract to support enhanced security in Ukraine by the U.S. Agency for International Development. A Tetra spokesperson declined comment.

But green tech, like most industries, have been and will be impacted by the considerable supply chain issues exacerbated by the invasion, Hiatt said.
The impact on EV automakers will be felt in particular. Hiatt noted that a significant amount of the world’s supply of rare earth metals that these automakers rely on, such as nickel or cobalt, are sourced from either Ukraine or Russia.

Higher production costs will be a setback not just for energy independence, Hiatt said, but for the state’s carbon-neutral goals.
“There’s a lot of people saying this would be great for EVs, that it will be great for renewable energies. But how many people can afford to pay $50,000 for an EV right now?” Hiatt said.

Nathan D. O’Malley, a partner in charge of international arbitration and litigation at the downtown-based law firm Musick Peeler LLP, said these supply chain issues could exacerbate the short-term problems with California’s energy plans while delaying some of the anticipated long-term benefits.

“We have a lot of interesting plans for the future, but the immediate concern is with the present energy prices. Renewable energies aren’t going to meet that need immediately,” O’Malley said. “Obviously, it’s hard to know which way this will go. But certainly, energy independence and autonomy from Russian oil is going to be a more significant goal throughout the world.”