Report: New Otkritie boss plans to seek assets from former owners

MOSCOW, Oct 9 (PRIME) -- The former owners of Russia’s Otkritie Bank will face new legal demands to surrender assets they bought with loans from the collapsed lender if they are needed to help recapitalise the bank, the Financial Times reported on October 8 quoting incoming CEO Mikhail Zadornov.

Russia’s central bank rescued Otkritie in August after a deposit run decimated what had been the country’s largest privately owned bank. It has said Zadornov will take over early next year after the central bank relinquishes control.

Zadornov told the Financial Times that Otkritie’s former controlling shareholders would have to write off the assets they pledged as collateral for loans from the bank if regulators find a balance sheet hole “close to or greater than” 400 billion rubles (U.S. $6.9 billion), their initial upper estimate.

“There’s a pretty serious intermingling of deals between the holding company (Otkritie Holding) and Otkritie Bank,” Zadornov said. “Since the scale of the problem is so great…the former owners will have to either pay off the loans on the assets or return them to the bank’s balance,” he said.

Otkritie is at present being run by a central bank team that is carrying out a full audit of all the deals, assets and accounts of the rescued lender.

Sergei Shvetsov, deputy central bank governor, said it was “obvious” that the bank would seek to tap the collateral that Otkritie’s former owners had pledged to the bank.

“It’s a totally normal civil law matter. You owe me and you have something I’m prepared to take as collateral on your debt,” Shvetsov said.

The central bank is separately pushing for legal changes that would force the owners of failed banks to surrender assets in exchange for bailouts.

Otkritie Bank was previously owned by Otkritie Holding, whose shareholders include a mix of individuals and companies, including founder Vadim Belyaev, the owners of Lukoil, VTB and former Otkritie Bank chief Ruben Aganbegyan.

Alexei Karakhan, a spokesman for Otkritie Holding, said all “the legally required information” was on Otkritie Holding’s website and declined to comment further on Zadornov’s remarks.

Elvira Nabiullina, the central bank governor, selected Zadornov after top private lenders Otkritie and B&N both went under within three weeks.

The central bank may have to supply up to 1.2 trillion rubles to recapitalize them, Natalya Orlova, chief economist at Alfa-Bank, said in a note to clients this week.

The central bank plans to merge the two banks, and it will be Zadornov’s job, who was finance minister during Russia’s 1998 default, to make them profitable. He intends to hold an initial public offering of the combined bank within three years.

“It’s not an easy job, but that’s what’s interesting about it. There aren’t a lot of jobs like that on the market,” he said.

Zadornov said 110 billion rubles in subordinated debt and 65 billion rubles in ruble bonds used to recapitalize Otkritie in 2015 will also be written off along with Otkritie’s former owners’ remaining 25% equity stake. The former owners have already surrendered a 7.56% stake in gold miner Polymetal, which is partly controlled by two of them.

The former owners of B&N pledged real estate assets bought with bank loans in exchange for the bailout and wrote off $226 million in their subordinated bonds this week.

Zadornov is finishing a widely praised 12-year stint running VTB 24, the retail arm of state-owned VTB that was created from the remains of six failed banks. “You can put together a completely solid business by combining banks if you have the right business model,” Zadornov said.

Otkritie and B&N also grew by absorbing collapsed lenders, but Zadornov said their mistake was to use central bank financing to fund further expansion without fixing the failing lenders they absorbed.

“We are seeing banks getting bailed out that were themselves the ones doing bailouts,” he said.

Zadornov said other privately held banks risk following suit. “You can’t run a business for long if it doesn’t bring you profit. It’s doomed to fail.”

VTB owned 10% of Otkritie and organized a 2014 repo deal that saw Otkritie double its assets overnight. Zadornov said VTB’s losses will be limited to the 10–15 billion rubles he expects to be written off from Otkritie’s share capital.

He said the newly combined Otkritie and B&N will compete with state banks for deposits from the state sector, which withdrew 30% of Otkritie’s balance sheet over the summer.

Otkritie will also retain the insurance business it inherited in its disastrous absorption of failing bank Rosgosstrakh, which he says will post more than 40 billion rubles in losses this year, and keep its 540 billion rubles pension fund that makes up nearly a third of the total market.

Mr Zadornov said the bank will probably dispose of its non-core assets, which include real estate and a diamond mine Otkritie bought from shareholder Lukoil for $1.4 billion — more than three times its market value — largely through a $1 billion VTB loan.

“I don’t think the bank?.?.?.?will have much desire for non-core activity, whether it’s mining diamonds or building offices,” he said.

(57.7612 rubles – U.S. $1)

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