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bne October 2017 Companies & Markets I 15
Russky Standart group's profits soar as illegal vodka production eradicated
Ben Aris in Berlin, Vladimir Kozlov in Moscow
Has the tide turned for Rustam Tariko, the owner of both Russky Standart vodka and a bank by the same name? The vodka business is booming, largely thanks to the fact the government has almost completely eradicated illegal vodka production.
The pioneer of unsecured consumer loans in Russia, Tariko earned his first fortune with the premium brand vodka Russky Standart in the noughties. He then christened his bank with the same name in 2001 and surprised Russia’s financial com- munity by the explosive growth of his unsecured retail loans business.
Initially thought to be a flash in the pan, the high street banks quickly discovered Russky Standart was wiping the floor with them and found that even after throwing considerable resources at retail lending they couldn't quite catch up with Tariko, who followed up by becoming a pioneer in the credit card market too.
Unusually for a Russian businessman, when it came to the bank Tariko hired consultants McKinsey to draw up the busi- ness plan and then simply did what they told him – hiring several of the consultants to come and actually run his busi- ness as well.
However, the western consultants were unhappy with the idea of naming the bank after a bottle of vodka. “You can’t do that,” they complained according to bne IntelliNews sources. To prove their point they went out and did some market research from which they came back rather sheepishly. “It's a really good idea,” they had to confess. Russian focus groups had conclud- ed that most of the big banks are backed by oil oligarchs and they were well aware that the price of oil is volatile. However, a bank backed by vodka sales will always do well, even in a crisis, the focus groups concluded.
As it turned out, Russky Standart was as prone to the volatility that the whole Russian banking sector has been through since
the 2008 global financial crisis as its peers, and was fighting for its life following the massive devaluation of the ruble at the end of 2014.
Tariko injected RUB22.98bn ($360mn) worth of capital into his troubled bank in October 2015 amongst a string of actions to boost the capital of one of Russia's top 20 banks.
Of all Russia’s banks, Russky Standart was amongst the most exposed to the currency risk as it heavily financed its retail loans business using international wholesale borrowing, while lending in rubles. Following the devaluation the cost of this borrowing skyrocketed while at home demand for credits dropped like a stone during the crisis. Net losses soared to
“The high street banks quickly discovered Russky Standart was wiping the floor with them”
RUB22bn ($330mn) in the first half of 2016 from RUB4.8bn in 2015, the bank reported. Its capital fell by 96% from the beginning of 2015 to RUB637mn from RUB16.1bn in 2016, while net interest income fell by 73% to RUB6.8bn
Tariko was forced to take drastic action and controversially restructured two Eurobond issues worth $350mn and $200mn in October 2016, allowing it to increase the capital by $450mn. The vodka business' outstanding debts were restructured, and Tariko's share in the company declined to 61.4%.
Also in 2016, Tariko was forced to sell the group’s pension fund to cover the obligations. The pension fund was taken over by Mikhail Shishkhanov's B&N Bank after it was pledged to them as collateral for previous loans. Tariko was scrambling
to sell assets in a bid to stave off bankruptcy for the bank and
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