Page 22 - bne_Magazine_September_2017

22 I Cover story bne September 2017
were passed earlier this year. The num- ber of domestic ratings a bank needs to hold state money has been raised from one to two. And when the CBR took over Otkritie it used a new Banking Sector Consolidation Fund, which conveniently had also been created earlier this year and was waiting on the shelf.
Until now the well-connected have assumed they can get away with daylight robbery, but the game just changed. Now everyone is nervous. Is yet another financial crisis around the corner? Prob- ably not. But Russia’s other commercial banks have scrambled to built up cash war chests in August – just in case.
The next stage is to clean Otkritie’s books up and assess the damage, which will take about six months. At the end of the day the central bank may still be left with a bill that breaks the previous Bank of Moscow bail out record of $14bn, but the cost of the CBR’s takeover will be immeasurably less than the cost of deal- ing with a full blown systemic banking crisis.
August woes
Russian crises always seem to happen
in August. It was in August 2004 that Russia had its last and very similar bank crisis. The CBR had just taken its first step to cleaning up the banking sector by pulling the license from the aptly named Sodbizness bank – the first time the CBR had ever cancelled a license – accusing the bank of money laundering and steal- ing depositors’ money.
The closure sent shockwaves through the system. Rumours circulated in the market that the CBR had a “blacklist”
of dodgy banks that would be closed down next. The interbank lending market froze and precipitated a real crisis. Banks began to fold. Middle class specialist Guta Bank’s owners pulled
the plug rather than fork out billions to recapitalise it and it was taken over by VTB, eventually becoming the basis of the state-owned bank’s highly success- ful retail operation VTB24. Ironically, VTB24 was so successful that the CBR turned to its CEO Mikhail Zardornov and asked him to take over Otkritie in the last week of August.
Trust bank take over
The other big deal that ended earning Otkritie more pressure than profits was the rescue of Trust Bank. Originally set up by oil oligarch Mikhail Khodorkovsky, the management bought out control following Khodorkovsky’s arrest in 2003 but went on to pillage its deposit base.
Trust got off to a good start during the boom years, selling itself as a westernised commercial bank and its CEO Ilya Yurov gave multiple interviews to bne. It even famously hired Hollywood actor Bruce Willis to be the face of its PR campaign. But after the crisis broke the management began to pillage its deposit base. Yurov was arrested while in transit through Ukraine on his way to London where his colleagues live at the end of last year, amazingly at Russia’s request. The CBR is trying to recover credits taken by the former shareholders reported worth $1bn.
In the middle of his mess the CBR gave Otkritie the job of rescuing the bank as well as a soft loan of RUB127bn ($2.2bn) to fund it. The regulator’s Deputy Chair- man Vasily Pozdyshev said at the end of August that Otkritie botched the job.
“Another strategic weakness of the group is a not completely successful bailout of Bank Trust. In general, we have a case here of a bailout creating problems within the turnaround manager itself and within the financial recovery of Bank Trust,” he said.
The management of the bank made several strategic mistakes and now Trust Bank needs even more help from the central bank, according to Pozdyshev. To make matters worse, when Otkritie itself got into trouble this summer it took at RUB80bn loan from Trust Bank, the bank it was supposed to rescue.
RCB Cyprus and Nomos Bank
Trust was not the only bank Otkritie took over. In 2014 it bought a stake 19.8% stake in the Cypriot lender RCB from, inevitably enough, VTB Group.
Otkritie sold the state again at the end of August for $100mn as it rushed to raise money, saying that the investment had always been a strategic deal. However, commentators speculate that the bank allowed VTB to circumnavigate US and European financial sanctions on VTB with Otkritie acting as a circuit breaker – a charge that all those involved in RCB deny.
Today’s FC Otkritie is actually the result of a merger of a smaller Otkritie bank and the mid-sized Nomos Bank in 2012 that belongs to another shareholder, Alexander Nesis in a deal that miffed investors into Nomos’ IPO only a year earlier. (see Nesis profile for details).
Before it got into trouble Otkritie held Its parent company RUB3.3 trillion ($56.8bn) in assets, more than all but the biggest three state lenders, Sberbank, VTB and Gazprombank.
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