UPDATE 3-In split from SocGen, TCW's fortunes seen set to rise
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By Jason Bush
MOSCOW, Aug 2 (Reuters Breakingviews)- The mammoth $14 bail-out of the Bank of Moscow MMBM.MM wasn’t a fiasco for everyone. A month after the embarrassing rescue of the troubled Moscow lender by state-owned banking giant VTB (VTBR.MM), the mysterious role played by Vitaly Yusufov, the son of a former Kremlin official, is raising serious questions about the affair.
Yusufov became involved when, in March, he acquired the 20 percent Bank of Moscow stake belonging to Andrei Borodin, the bank’s ex-president, who has since fled to London to escape embezzlement charges. Yusufov is now haggling with VTB, which needs his stake to complete its acquisition. The details are typically murky, but Yusufov is reported to have paid Borodin between $700 million and $1 billion. Now he is valuing the stake at around $1.25 billion. The shares’ current market value is a little over $1 billion.
This looks like a surprising way to make money. Without the massive bailout from the state, Bank of Moscow would effectively be bankrupt, its shares worthless. Even more bizarrely, Yusufov paid for his stake with a $1.1 billion loan from the Bank of Moscow itself. The Russian central bank considers this loan as one of BoM’s riskiest credits.
Yusufov’s luck is a matter for gossip. Borodin claims that he actually negotiated the sale with the young entrepreneur’s father, Igor Yusufov, who was until recently President Dmitry Medvedev’s energy advisor. It’s hard to separate fact from rumour. But just a few weeks later, Yusufov senior was reported to be playing a similar role -– as a sort of unofficial Kremlin fixer -– in relation to Domodedovo airport, the subject of yet another corporate-political battle.
Whatever the truth about the Yusufofs, it should give investors in VTB yet more grounds to question their bank’s involvement in this shady affair. It’s also clear that the burden of the costly rescue package is not being fairly shared. Why should one shareholder be profiting from the Bank of Moscow’s woes, while another, VTB, is paying up to fix them?
The latest shenanigans also show that Bank of Moscow’s problems are not some kind of isolated misfortune, which can be conveniently laid at the door of the disgraced ex-mayor, Yuri Luzhkov. Russia’s culture of non-transparency, cronyism and political intrigue can't be so easily fixed.
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-- Russian businessman Vitaly Yusufov said on July 27 that he had agreed in principle to sell his 19.9 percent stake in Bank of Moscow to Russia’s state bank VTB, but that terms of the sale had yet to be agreed. Yusufov said that he hoped to sell his stake based on the average share price over the preceding three or six months, which analysts said valued it at 33-35 billion roubles ($1.2-1.27 billion). Yusufov said that VTB regarded this price as too high.
-- In a letter dated July 19, Vasily Sidorov, chairman of VTB’s Shareholders’ Consultative Council, asked VTB president Andrei Kostin to explain a $1.1 billion loan by Bank of Moscow in March to enable Vitaly Yusufov to acquire a 19.9 percent stake from Andrei Borodin. The letter was published by corporate governance campaigner Alexei Navalny. In the letter, Sidorov wrote that if VTB paid an “inexplicable” price for Yusufov’s stake, this would be “the last straw” for its public shareholders.
-- On July 12, following an appraisal of Bank of Moscow’s loan portfolio, the Central Bank of Russia categorised the $1.1 billion loan to Yusufov’s Europrojects Investments Global Ltd as a “risky” loan, the purpose of which it said had been misreported. Russian media reported that the loan had been secured against Nordic Yards, a German shipyard acquired in 2009 by Yusufov for 40.5 million euros.
-- Russian officials announced on July 1 that Bank of Moscow would receive a $14 billion bailout, after a hostile takeover bid by VTB revealed a large hole in the books of Russia's fifth largest bank. The head of Russia's Deposit Insurance Agency said Bank of Moscow's problem loans were estimated at $9 billion, including $5.4 billion that were “bad” and unlikely to be recovered. Under the bailout, the central bank will fund a 10-year loan of 295 billion roubles ($10.6 billion) to Bank of Moscow at 0.5 percent interest, while VTB will contribute 100 billion roubles to recapitalise the bank.
-- On April 8, the former President of Bank of Moscow, Andrei Borodin, said that he had sold his 19.9 percent stake in the bank to Vitaly Yusufov. Borodin did not disclose the price, but Russian media subsequently reported that Borodin had received between 20 billion roubles ($714 million) and $1 billion, citing anonymous sources. Borodin claimed that as part of the deal he had been offered protection from prosecution by Vitaly Yusufov’s father Igor Yusufov, a claim which Vitaly Yusufov denied.
-- On April 8, Igor Yusufov was relieved of his post as President Dmitry Medvedev’s special envoy for international energy cooperation. The Kremlin did not give a reason for Yusufov’s departure, but said that “the President of Russia supports the intention of I. Yusufov to use his experience...for the realisation of significant investment projects in the Russian Federation and abroad”.
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(Editing by Pierre Briançon and David Evans)
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By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
* Defendant's federal conviction was overturned in February
* Alternatives to Libor to be found for some contracts