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Financial Cosmetics of the VTB


VTB returned a pre-tax profit in the amount of 21.9 billion roubles in 2012, according to the profit-an-loss report (Form 102). However, the profit was almost entirely ensured by dividends of its subsidiaries, which amounted to 21.4 billion roubles. Without them, the bank’s profit would have dwindled to 0.4 billion.

A similar situation, even though less radical, occurred in 2011, when the 30.7 billion roubles of pre-tax profit were largely formed by dividends of the subsidiaries, which amounted to 22.8 billion roubles. Without those dividends, VTB would have had a pre-tax profit of 7.9 billion.

In 2010, however, the situation was different: the pre-tax profit amounted to 57.8 billion roubles, whereas the dividends of the subsidiary structures amounted to only 9.7 billion. Without the dividends of the subsidiaries, VTB would have made a profit of 48.1 billion roubles.

Here is another surprising tendency: although the crisis in Russia is long over, the farther away it goes, the smaller is the profit made by the parent bank of the group.

In addition to “sucking” profits from the subsidiaries, VTB hands its debts over to them, which most probably are bad ones. VTB sold its debts in the amount of 179.1 billion roubles in 2012 and 63.4 billion in 2011. In particular, the Bank of Moscow, VTB’s subsidiary being reorganised, acquired from VTB debts in the amount of 51.7 billion roubles in June 2012.

An equally “creative” approach to indicator improvement is also seen in the operation of other banks of the group. For example, the Leto Bank (a “light” subsidiary of VTB-24), held first place in 2012 in the ranking of the most profitable banks. Its asset profitability amounted to 96.4 per cent. However, a look at its profit-and-loss report will show that without the income from property received free of charge (simply speaking, shareholder’s presents), the bank is highly unprofitable. Indeed, with a pre-tax profit of 685.7 million roubles, the “presents” amounted to 1.2 billion. Without the “present,” the bank’s loss would have amounted to 541.3 million roubles.

The state also is helping VTB to turn losses into profits. The group’s pre-tax profit in 2011 amounted to 115.5 billion roubles. On 29 September 2011 the Bank of Moscow took a loan from the Deposit Insurance Company in the amount of 294.8 billion roubles at a 0.51 per cent annual interest rate for the term of 10 years. The bank recognised the loan at a just cost of 142.8 billion roubles. The amount of income from the initial recognition of the loan amounted to 152.0 billion. Without the income, the VTB group would have had a loss of 36.5 billion roubles in 2011.

Yet, this whole creativity sparks no enthusiasm in the investors, and the VTB share price still finds itself not only below the level of the 2007 “people’s” IPO equal to 13.6 kopeks per share but also below the level of the February 2011 SPO of 9.15 kopeks. On 1 February 2013 VTB shares cost 5.6 kopeks apiece.

Meanwhile, Sberbank equities surpassed the level of the 2007 SPO (89 roubles with a split factored in) and cost 108.4 roubles on 1 February 2013.

Also, Sberbank is free of the trail of corporate scandals that VTB has. It is enough to recall the story with the Chinese drilling rigs, with dividends of a Cypriot subsidiary bank, with the takeover of the Bank of Moscow, with the “people’s” IPO, smoothly transformed into a pre-election “people’s” buy-back…