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. Last Updated: 07/27/2016

State Moves to Avert Crisis at Bank

The Central Bank announced Tuesday it had imposed crisis management on Unicombank, Russia's 12th largest, warning of a grave risk to the bank and its 250,000 depositors.


The crisis at a high-profile bank with over $1.8 billion in assets fuels concerns over the security of the Russian financial system. If the bank does collapse, it would rank in degree of seriousness with the August 1995 financial collapse that brought down a string of small banks.


Banking sources Tuesday described the developments around Unicombank as "serious," but said that it was unlikely to result in a chain reaction of bank defaults comparable to last August's inter-bank crisis.


"Since then the banks have become much more cautious about lending money to each other," said Andrei Yashchenko, a banking analyst with Moscow stock broker United City Bank.


The Central Bank's decision to place Unicombank in receivership, imposing a crisis management in what can be a preliminary step to bankruptcy, followed months of rumors about serious liquidity problems at the institution.


A Central Bank spokeswoman said Tuesday that the intervention had been prompted by financial troubles at Unicombank. "The Central Bank understands that the situation is very difficult," she said.


She said that a Central Bank deputy chairwoman, Tatyana Artyomova, had been appointed to head an operation to try to restructure Unicombank.


"The task now is to assess the financial situation of the bank and the possibility of its last month ranked Unicombank fifth among Russian banks in terms of deposits from private investors.


Officials at Unicombank denied that the bank was in financial crisis. In remarks reported by Segodnya on Tuesday, the bank's new chairman of the board, Grigory Litovchenko, who was appointed last week, said that the bank was facing a "management crisis" rather than financial problems.


A spokeswoman for Unicombank Tuesday tried to calm fears among small depositors about the crisis at the bank. She said receivership "would not change anything for retail clients" and all branches of the bank would continue their operations.


She said the Central Bank had imposed its own management not because Unicombank was unsound but because it objected to a move by the bank to sell 29 percent of its stock to a company called BIN Financial Corporation in exchange for a 110-billion-ruble cash injection.


"BIN indeed tried to take a large stake," said the Unicombank spokeswoman, and added that "this met resistance from the Central Bank."


It is not clear why the Central Bank would object to BIN acting as a white knight for Unicombank.


BIN is however an unorthodox player, even for Russia's wild financial markets. BIN's main business is marketing and management of a government-sanctioned, off-shore tax haven established in the strategically important Caucasian republic of Ingushetia in June 1994.


The former chairman of BIN, Mikhail Gutseriev, was recently elected deputy speaker of the Duma for Vladimir Zhirinovsky's Liberal Democratic Party. According to reports in the Russian press, it was Gutseriev who was orchestrating the deal between BIN and Unicombank.


Analysts however discounted the idea that the takeover problems was at the heart of the receivership at Unicombank.


"Receivership is only applied to banks with serious problems," said Yashchenko of United City Bank.


Yashchenko described Unicombank as a "well-known and powerful" institution with a strong power base in the Moscow region, where services the accounts of the regional government.


However, he said rumors about liquidity problems at the bank had circulated in Moscow banking circles since late last year.


One Moscow banker who asked not to be named said that Unicombank is in trouble because of bad debts with mining giant Norilsk Nickel.


According to a report published last year by AIOC Capital, a now-defunct Moscow brokerage firm, Unicombank acted as a funnel for Central Bank loans to Norilsk. "The bank was thus wholly dependent on Norilsk for the re-payment of its loans and its ongoing solvency," the report said.


Last month Interfax reported that approximately 30 percent of Unicombank's turnover is still in the Norilsk region.


According to press reports, another financial black hole for Unicombank was its lavish investment in a six-story glass-and-steel office building near Chistiye Prudi in central Moscow which according to the newspaper Commersant Daily cost several hundred billion rubles.