$2.4Bln In Bailout Funds For VTB

MTVTB may delay moving its offices to the Federation Tower, in Moskva-City.
In the first major sign that the liquidity crisis is affecting Russia's state banking giants, VTB, the country's second-largest bank, will apply for government bailout money to refinance its foreign loans for this year and next year, and plans to cut internal costs by 15 percent to 20 percent in the fourth quarter.

The money will come from the $50 billion the government has allocated via Vneshekonombank, or VEB, also known as the state-owned Development Bank, to help banks repay outstanding foreign debt, VTB chief executive Andrei Kostin told reporters on the sidelines of an investor roadshow late Saturday in Washington, RIA-Novosti reported on Monday.

The debt refinancing for VTB will likely ease the delivery of financial support for nonstate banks promised by the government in recent weeks, as liquidity shortages look likely to lead to serious consolidation in the coming months.

Kostin said VTB needed to repay $9 billion worth of foreign loans in 2009 and $2.4 billion by the end of this year.

VTB will apply to VEB for $2.4 billion to repay its foreign loans this year, RIA-Novosti reported. VEB will receive a subordinated loan of $7.7 billion from the state, Reuters reported.

"I don't think that we'll raise money on public capital markets this year, and therefore we have turned to VEB for debt refinancing," Kostin said, RIA-Novosti reported.

Like Russia's other two large, state-controlled banks, Sberbank and Gazprombank, VTB has suffered from the 13-month credit crunch and the broader economic crisis, losing 77 percent of its stock value since its $8 billion initial public offering in May 2007.

Since Sept. 1, VTB shares have plummeted over 50 percent on Russia's ruble-denominated MICEX.

Kostin said the cost cutting would begin with details as small as the flowers on his desk.

"So far, we have no plans to lay off staff, but we will not take any new staff on. We are also freezing expenditures, for example, spending on real estate," Kostin said.

VTB will likely delay moving its headquarters to the Federation Tower, a part of the Moscow International Business Center in Moskva-City, Kostin said.

He added that VTB would also go back on its offer of buying up additional space in the complex -- a setback for the construction industry, which has been one of the hardest hit sectors in the economic crisis and thus one of the industries most vulnerable to defaults.

Following Kostin's announcement, VTB's shares on the MICEX fell 5.7 percent Monday, more than the 4.9 percent fall on the 30-stock index.

Mikhail Galkin, a fixed income analyst at MDM Bank, said the refinancing should enable VTB to relieve the liquidity crisis by freeing up funds for lending to smaller, private banks.

"Individual households and corporate [clients] are fleeing from privately-owned banks to VTB. Effectively as VTB gets more cash and gets its problems resolved, it will be more active in the corporate lending market, and that will relieve the pressure on the privately-owned banks."

Galkin added that while the loan to VTB would mean less money out of VEB's $50 billion for non-state banks and their shareholders, the loan would ultimately help stimulate borrowing.

"If VTB manages to refinance this, it means it won't have to cut back on lending," Galkin said. "On the contrary, it will be able to expand on lending."

VTB is one of Russia's largest external borrowers, and thus one of a select few companies facing the problem of foreign debt refinancing.

Analysts said they remained positive about VTB's core business.

"VTB has been a winner, I've been saying that since the [corporate credit] crisis started 13 months ago," said Mark Rubinstein, a bank analyst at Metropol. "VTB has been buying particular consumer loans from other banks, and they've been [making] very good purchases at a large discount."

Galkin agreed that, thanks to financial help from the authorities, the bank had thus far been able to avoid any drastic losses.

"The bank has maintained its ratings, which signals that it has been very successful in dealing with the crisis," Galkin said. "Many other banks have had a rating or outlook cut."