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. Last Updated: 07/27/2016

Alfa Jostles for Post-Crisis Market




Alfa Bank is paying all its Russian depositors and corporate clients and it has even launched a television advertising campaign to attract new customers.


But despite this confidence, the bank admits one serious problem: It cannot repay a $77 million foreign syndicated loan that came due Oct. 30.


To Alfa Bank President Pyotr Aven, this is just a short-term hiccup. He expects to restructure the $77 million loan arranged by Bank of America quite soon.


"I am certain we will reach an agreement in a friendly way and sign a deal in the near future," Aven said in an interview in his Moscow office.


Alfa, Russia's 17th biggest bank with assets of 7.3 billion rubles ($1.2 billion) on July 1, according to an Interfax survey, has been hit hard by the financial crisis that started Aug. 17. It lost about $100 million in the collapse of the treasury-bill market, Aven admits.


And it faced a serious outflow of retail deposits. Aven said Alfa Bank has lost 60 percent of individual deposits since the Aug. 17 ruble devaluation. According to Interfax, Alfa had 556.5 million rubles in individual deposits July 1.


But unlike other big banks - MOST-Bank, SBS-Agro, Menatep, Inkombank, Uneximbank, Mosbiznesbank and Rossiisky Kredit - which have frozen clients' funds and have been sued by angry depositors, there are no such lawsuits against Alfa, consumer advocates say.


Alfa's liquidity - at least as far as domestic investors go - is not being funded by big loans from the Central Bank. Aven says he has received and asked for none.


Instead, Aven credits his bank's ability to keep at least the domestic end of the bargain to Alfa's conviction that a devaluation of the ruble was imminent in the weeks before Aug. 17.


Aven said that when the government defaulted on its domestic debt, the bank had only 5 percent of its assets in treasury bills. Even in July, he said, the figure was only slightly higher, though the Interfax survey says Alfa had 12 percent of assets in T-bills on July 1.


Still, Alfa lost about $100 million in T-bills, Aven says, and he expects to get back only a few cents in the dollar from the debt restructuring talks now under way. "We should not have held any T-bills at all, but somehow we didn't figure that out," Aven said.


Alfa's limited T-bill exposure was one asset after Aug. 17 when there was a run on retail deposits. Alfa also managed to raise cash by selling off to Western banks some of its loan portfolio, including loans to Gazprom and major Russian oil companies.


Now, according to Aven, the outflow of clients has stopped. The banker claimed that over 3,000 new accounts have been opened at Alfa Bank since Aug. 17.


"A number of our competitors have died, and people are coming here," Aven said. "There is already a tradition of working with private banks, where the offices are cleaner and clients are treated more politely [than in state-controlled Sberbank.] There are fewer big private banks now, and that makes us absolutely certain that in the end we will gain from the crisis."


That is the line Aven is feeding his bank's foreign creditors, too. "We could do something to pay out a large part of the [$77 million] now, but it would benefit our creditors to have us survive, stay on the market, so they could keep working with us," he said.


One plus for Aven is that Alfa had only one hard-currency forward contract, which he says has now been paid.


Aven, a former foreign trade minister in former acting Prime Minister Yegor Gaidar's 1992 government, has been named among Russia's "oligarchs," or powerful financiers with political clout. A diploma from President Boris Yeltsin, thanking the banker for his help in getting the president re-elected in 1996, still graces Aven's office. So do two of the special telephones that give direct access to the internal communications system of top government officials.


But Aven himself is skeptical about the numerous theories about the oligarchs' involvement in the government's Aug. 17 decisions or in the subsequent fall of Prime Minister Sergei Kiriyenko's Cabinet.


"I do not believe in conspiracy theories," Aven said. "These were simply some very unprofessional decisions that ended up hurting the banks, especial ly the foreign debt repayment moratorium. ... The so-called oligarchs have always had less influence than conventional wisdom attributed to them. Now they have even less influence, because the big empires that have been associated with the oligarchs' names have been seriously undermined, if not destroyed."


Aven said the current government is much harder for anyone to influence than previous Cabinets headed by Viktor Chernomyrdin were.


But only recently Itar-Tass reported that the government approved a resolution, proposed, among others, by Alfa Bank and allowing regions to pay off some agricultural loans to the federal government with food, not cash. Alfa Bank has loans out to many of the regions.


Aven denied his bank had lobbied for such a resolution.


"We credit many companies in the regions, we work with the government's money, so we need effective communications," Aven said. "If secretaries put people through to their bosses on ordinary city telephone lines, we would use them."


Alfa's policy of honoring debt to depositors while stalling foreign creditors is unusual. "For most Russian banks, foreign obligations are more important than bothering with depositors," said Kim Iskyan, a banking analyst at MFK Renaissance. "It will be extremely difficult for a bank that has once defaulted on a syndicated loan to obtain more Western financing."


Iskyan says Alfa's policy of favoring Russian clients over Western creditors may have a logical explanation. All Russian entities are likely to be lumped together as unreliable in a Western creditor's mind, anyway, so paying debts to foreigners will do little good.