If we cast our minds back to early 2011, the Bank of Moscow stood out from its rivals boasting high international credit ratings and had just welcomed very reputable international institutions such as Goldman Sachs to its shareholder list. A fully commercial bank was operating with transparent loan procedures and a profitable and frequently audited balance sheet. Bank of Moscow was a highly respected international bank whose brand value alone amounted almost to 1 billion USD. That is why, until VTB took over, the idea that Bank of Moscow needed funding would have sounded ridiculous.
When I first heard the rumours about VTB requesting incredible levels of state aid, I suddenly remembered a story which happened 12 years ago, when before the crisis of 1998 Bank of Moscow carried out a purchase of a controlling package of shares of ‘Mosbusinessbank’.
I started negotiations in March of 1998, and we were not planning to hurry as there were a lot of questions regarding the quality of the credit portfolio of ‘Mosbusiness’. On the other hand, our bank was critically in need of an enlarged branch network and the wide client base of a large (7th place for the size of assets) federal bank, which ‘Mosbusinessbank’ was – as during Soviet times it has been a part of the system of State Bank of USSR.
In August we were roughly halfway through the transaction, when the default of the Russian Federation Government quietly began to happen. This naturally caused ever greater issues as a result of the economic chain reaction to this event. The losses of the banking sector began to grow, clients began to take away money, and liquidity disappeared in a number of days. And only the change in the management of the Central Bank was able to ease the situation to an extent with the commencement of a national payment system in the country.
In our case instead of a calm merger of two banks, Bank of Moscow had to act as ‘sanation’ for ‘Mosbusinessbank’. Besides, Central Bank’s loans for sanation cost 60% instead of the accepted 15%. In my professional career this was probably the hardest time – it was necessary to pull out two banks at the same time. Obviously, had we known beforehand that Russia would announce a default on its obligations in national currency, which as it is known is impossible by definition in the world of rational economy, Bank of Moscow would have acted differently in the area of purchase of financial assets. But having told ‘A’ and having made a corresponding step, you cannot and you do not have a right to declare after certain time that you wish to turn back on the deal, as hard or as difficult as it might be to do so. These are the rules of doing business. Another way to solve the problem is for the head of the bank to resign having admitted his miscalculation.
In 1998 the purchase of ‘Mosbusinessbank’ was not the best deal for Bank of Moscow. But we understood that even in the most difficult times we did not have any other choice but, on a daily basis, to find a way out of this particularly desperate situation – this was our professional duty and responsibility to the clients and shareholders of the bank. And even when the Central Bank, under pressure from the IMF (by the way, there is still a toilet room in the Central Bank called in the name of Michel Camdessus – then the director of IMF), withdrew a license from ‘Mosbusinessbank’, which strongly violated the agreement with Bank of Moscow, we did not give up, and we had enough strength to carry on for 48 hours practically without sleeping, as we were engaged in finding a way round the blockage caused by the decision of the regulator. Yet we did not ask federal or Moscow government for financial aid, even though we had full moral right in connection with the force-majeure resulting from the breakage of the agreement by Central Bank with the Bank of Moscow regarding the sanation of ‘Mosbusinessbank’. But after a certain time, the situation started to improve in the economy, as well as in the banking sector. Following three years our investments into the story called ‘Mosbusinessbank’ totally paid off. Yet the work on return of loans was not going easy. It was required to deal with frank criminals, swindlers, businessmen connected with high-ranking corrupt officials in Moscow and regions.
Why do I say this today, after 12 years? Let’s go back to where we started from. The request of VTB for financial aid from the government amounting to either 150 or 250 billion roubles. It appears that every citizen in the country will need to send from one thousand one hundred roubles up to one thousand eight hundred roubles for the benefit of top managers of the state bank.
I shall repeat again. In my opinion, Bank of Moscow does not basically require any means of state support, whatever state raiders may say.
If it seems for the effective managers from VTB that one of the loans is deviating from the standards, then I would advise them to go to the archive of the Bank of Moscow, and lift documents of 12-years ago, read through them, and then just get down to doing some work, as we did in our time. Suddenly there will be no trace left from the problems. I am ready to help with advice…