Page 73 - bne Magazine February 2023

bne February 2023 Eurasia I 73
2010s
Daylight robbery in Moscow’s Garden Ring
In the decade after the boom years of the noughties Russia’s banking sector became the scene of a daylight robbery as banker after banker helped them- selves to their depositors' money. When the Central Bank of Russia (CBR) finally stepped in and started closing down banks it eventually cost the country the equivalent of 5% of GDP to bail out the strategically important banks and reim- burse the depositors under the deposit insurance scheme.
When the regulator got round to shut- tering a dodgy bank it typically found at least a $1bn hole in the balance sheet and the owners long gone. As the first RUB1.4mn ($23,555 at 2017 exchange rates) of deposits are covered by an insurance scheme the clean-up cost
the government about $50bn by 2017, and that was before it that year took on the really big commercial banks, the so-called Garden Ring banks, that could threaten the entire financial system’s stability if they collapsed.
It took the regulator almost two decades to tackle the problem of insiders stealing from their own banks. The campaign started when the central bank decided to close the aptly named Sodbiznesbank in July 2004. It was the first time the CBR had pulled a bank licence and accused the management of breaking money-laundering laws. The decision came as such a shock it caused a mini-banking crisis as rumours flashed around the market that the CBR had a “blacklist” of smaller banks it wanted to shutter.
The closure of Sodbiznesbank was the start of a campaign championed by the CBR’s deputy governor Andrey Kozlov, but he paid a high price for cutting off some of Russia’s most powerful busi- nessmen from their easy gains. Kozlov was shot dead on September 13, 2006, just as the bank sector clean-up was gathering momentum.
Many of Russia’s banks are little more than sham Potemkin fronts or glorified
treasury operations for their oligarch owners. “Bank-like institutions” Renaissance Capital analyst Kim Iskyan famously dubbed them.
But to date the biggest of all the shut- downs was Bank of Moscow, which at its peak in 2011 was the fifth-largest bank in the country. The bank collapsed in spec- tacular fashion after it became clear its management was robbing it blind, and it was eventually rescued by VTB in 2016.
A pocket bank of the Moscow city government, the bank was set up during Moscow mayor Yuri Luzhkov’s tenure and became an “authorised” bank of
the city government, allowing it to hold city company funds and run the payroll for its civil servants. Just how badly the bank had been robbed only became clear after VTB took control.
“There were two banks,” VTB’s former CFO Herbert Moos told bne IntelliNews in an exclusive interview at the time. “Downstairs there was a normal and successful commercial bank, but upstairs in some small offices we found a loan factory.” The former chairman
Borodin skipped town after an investi- gation into his bank started, and now lives in London, where the British gov- ernment has granted him and his super- model wife “political asylum” despite the fact he has never been involved in opposition politics, or any other sort of politics either. The British press write breathless articles after he bought a GBP140mn-plus ($170mn) house in Henley, dubbing him an “alleged fugi- tive” rather than being accused by the Russian regulator of probably being the most successful bank robber of all time.
Almost as bad, but not on the same scale, Russia’s other most notorious bank robbery involved International Industrial bank (Mezhprombank), owned by Sergei Pugachev, who came to fame as being a key Kremlin-insider source for Catherine Belton’s award winning book “Putin’s People”. Mezhprombank was amongst the very last banks to be bailed out by the CBR in the immediate aftermath of the 2008 financial crisis. Formerly a close associate of Russian President Vladimir Putin, Pugachev was for a time con- sidered to be the last of the old-school oligarchs that rose to prominence under
“There were two banks. Downstairs there was a normal and successful commercial bank, but upstairs in some small offices we found a loan factory”
Andrey Borodin was allegedly cutting up hundreds of millions of dollars’ worth of credits to fictitious companies into small enough pieces that they wouldn’t trigger the CBR money- laundering red flags, and to obfuscate inspections due to the sheer volume of the paperwork.
In the final tally, VTB estimated that there was a $9bn hole in the bank’s bal- ance sheet, which required the largest bailout in Russia’s banking history of $14bn – more than the entire amount lent by the CBR to shore up the entire banking sector during the worst of the 2008 financial instability.
Boris Yeltsin in the 1990s, as he seemed to have successfully made the transition to the Putin regime.
The 2008 crisis wrecked his bank, but the CBR stepped in with a $1bn bailout loan. Except rather than use the money to shore up Mexhprombank’s rocky balance sheet, Pugachev skipped town and moved to London. In 2010 the state appropriated all his Russian assets
and started a legal campaign to try to recover its cash.
Unlike Borodin, Pugachev has not had an easy time in exile, as detailed in a bne IntelliNews profile of him after he
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