Bank of Moscow to Ask for a Bailout

Bank of Moscow said Monday that it would ask Vneshekonombank for more than $1 billion in loans and lay off 10 percent of its staff.

While the refinancing request is notable for its sheer size, industry insiders said it was not surprising given the level of the bank's foreign borrowings and the loans that Vneshekonombank, or VEB, has already extended to state-controlled banks Sberbank and VTB.

Bank of Moscow wants a $356 million subordinated loan and more than $1 billion in refinancing loans to help repay foreign debt, bank president Andrei Borodin told reporters.

He said he would request the "maximum level of credit possible," an amount set by VEB as the funds that a bank is able to raise from an additional share offering.

Bank of Moscow announced Nov. 14 that it expected to raise $350 million through an issue of preferred shares in the third quarter of 2009.

Borodin said the bank had already begun the process of cutting staff levels by 10 percent but that he remained optimistic about the prospects for 2009.

"Foreign markets will be hard to please, but perhaps there will be a small window," Borodin said, Prime-Tass reported.

He added, however, that the bank did not expect to see a large growth in deposits. "Client balances are unlikely to be large next year," he said.

Bank of Moscow, part-owned by the Moscow City government, is in a particularly good position to benefit from VEB bailout loans, as are the other state-controlled banks, analysts said.

VEB announced Dec. 1 that it would refinance $9.8 billion worth of debts owed by Russian companies, and it has already offered $950 million to another state-owned bank, VTB, with the understanding that VTB will co-finance 25 percent of the amount.

"All of the banks that have had state support are doing very well because they have huge amounts of liquidity," said Richard Hainsworth, CEO of ratings agency Rusrating.

Bank of Moscow shares also seemed to be benefiting more from state financial support than other companies on the country's securities exchanges, said Mark Rubinstein, senior analyst at IFC Metropol.

"If you look at the performances of the top eight banks, Bank of Moscow has done the best, surprisingly, for the past four or five months," Rubinstein said. "Bank of Moscow was the only bank besides VTB that was in the black for the month of October."

Rubinstein said Bank of Moscow's large request for refinancing was likely because of the fact that 16.2 percent of its borrowing is from foreign sources.

"The [foreign refinancing] loan is something that has been in the cards for a while," Rubinstein said.

An additional catalyst for the loan could be the bank's heavy involvement in construction, one of the industries hit hardest by the crisis, said Natalya Orlova, chief economist at Alfa Bank.

"The major issue with Bank of Moscow is its significant exposure in the construction sector — about 16 percent," she said. "All the banks running exposure to the construction sector are looking to attract additional financial sources now."

Bank of Moscow ranked fifth among Russian banks in terms of assets and sixth in terms of capital at the end of the third quarter of this year, according to Interfax's rankings of the country's top 100 banks. Industry analysts currently predict that Bank of Moscow loans and assets will grow at a rate of 15 percent to 20 percent next year, Rubinstein said.

Orlova said Bank of Moscow's 10 percent staff cut was in line with the reductions other banks in the sector have been seeing. "I think [the staff cuts] at other banks were about 20 percent," she said, adding that the layoffs provided a good indicator of the slowdown of lending in the sector.

Given the lack of liquidity on foreign markets, Hainsworth said none of the bank's announcements were particularly surprising.

"This is a global problem, not just a prejudice against Russia or Bank of Moscow," he said.