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. Last Updated: 07/27/2016

Little But Bones Left in Inkombank's Carcass




Founder Vladimir Vinogradov has abandoned Inkombank. The Central Bank has abandoned Inkombank. And the fate of Russia's third largest savings bank hangs in the hands of a court-appointed temporary administrator.


Inkombank is hurtling toward a Jan. 28 court date that will determine whether to liquidate the house that Vinogradov built. The bank's creditors and depositors won a small victory when the Moscow arbitration court opened bankruptcy proceedings Nov. 4, but if actual liquidation occurs, it's likely to be a sloppy affair leaving many creditors unsatisfied.


Inkombank, which had gambled heavily on the ruble forward market, was one of the biggest casualties of the Aug. 17 ruble devaluation and debt default. Before the crisis it had been Russia's third biggest retail bank behind Sberbank and SBS-Agro.


For that reason many believed the Central Bank would pump Inkombank full of loans in order to save it. But the government seems intent on letting Inkombank fail, perhaps because Vinogradov and Central Bank chairman Viktor Gerashchenko are said to dislike each other.


Inkombank lost its only backer when Vinogradov stepped down as chairman on Oct. 27, reportedly exhausted from an ongoing illness.


The Central Bank back in September imposed a temporary administration, raising hopes of a restructuring, but this only existed on paper. Two days after Vinogradov resigned, the Central Bank yanked Inkombank's license and the temporary administrator disappeared soon afterward.


"The court is now controlling Inkombank," a Central Bank spokesman said last week. "If the court decides to make Inkombank bankrupt, then the court manager will become the liquidator and he will make the decisions about property."


Despite its upcoming bankruptcy hearing, Inkombank could still be rescued by a manager with vision, an iron will and deep pockets. Deutsche Bank and Gazprom's National Reserve Bank - both creditors of Inkombank - have been mentioned as contenders.


Creditors have the best chance of retrieving their money if Inkombank is kept alive as a living, breathing institution. The bank owes its 200,000 depositors about 500 million rubles ($25 million) plus over $300 million in hard currency. It also owes foreign creditors $830 million in loans and has a liability on forward contracts with foreign institutions totaling $1.2 billion.


But the most likely outcome is for former managers and parties with inside information to cherry-pick the best assets, leaving foreign creditors and individual depositors to fight over the carcass.


"If the Central Bank washes its hands of the situation and the owners and previous managers turn their backs, it will be a miracle if anything of value is left for those who put their trust in the bank and in the system it operated within," said Richard Hainsworth, Moscow representative of rating agency Thomson BankWatch.


Bankruptcy proceedings began Nov. 4 when the Moscow arbitration court approved the suit of an Inkombank creditor requesting liquidation. On Nov. 20 the court appointed its own candidate as temporary administrator to oversee the first stage of bankruptcy: Vladimir Alekseyev, a banker from Saratov who oversaw the liquidation of the regional Germes-Volga Bank last year.


Alekseyev declined to comment on the bankruptcy process, but analysts doubt his ability to keep the foxes out of Inkombank's henhouse during the run-up to the Jan. 28 bankruptcy hearing.


Chaos appears to be reigning in some of Inkombank's 118 branch offices nationwide. Employees of bank headquarters in Moscow have been stealing everything from computers to expensive doorknobs as liquidation looms, according to a banker close to Inkombank who wished to remain anonymous.


The theft could run much deeper if allegations made by Inkombank insiders are true.


The head of Inkombank's supervisory council, Vladimir Groshev, said at a news conference in early November that there had been an inadequate "system for opposing the withdrawal of assets from the bank."


A consultant Inkombank hired in August to help draft a restructuring plan, Ralph-Dieter Montag-Girmes, managing director of consultancy ARQ Co., said in a recent issue of Dengi magazine that managers of Inkombank had stolen $1.5 billion in recent months through clever paper shuffling.


The methods for stealing assets are the same at any bank, he said. Management buys up the bank's outstanding promissory notes, or veksels, for 10 to 20 percent of their nominal value and then pays off bank employees to pay the veksels in full, Montag-Girmes said. In a bank that still has a license, management can make off with clients' frozen tax payments to the federal government once the client has transferred responsibility for paying the tax to the bank, the consultant said.


"We worked with Inkombank for more than two months and it seemed to us that during all that time Vinogradov, Groshev and other managers of Inkombank were engaged in completely different activities - specifically, in saving themselves," Montag-Girmes said. He could not be reached for comment and did not reveal to the magazine under what circumstances his work with Inkombank ended.


Analysts have also speculated that management may be siphoning off the bank's industrial assets. Inkombank's ownership in food processing, metals and aerospace enterprises has been carefully structured to allow for easy stripping.


Many of the holdings are not owned directly by Inkombank but by "affiliated persons" most likely leading back to Vinogradov, according to an informed source.


As of Jan. 1, Inkombank owned 26 percent of the giant Magnitogorsk steelworks, but only 3 percent was held directly by Inkombank. So-called affiliated persons held the rest. Likewise, all of the 51.6 percent the bank owns in the Rot Front chocolate factory is held by affiliated persons.


Of the bank's 65.7 percent stake in the Babayevskaya chocolate factory, Inkombank owned 51 percent directly on Jan. 1 and 14.7 percent through affiliated companies. A 49 percent stake in the Omsk Bacon factory was held directly, but a 91.7 percent stake in the Novosibirsk Margarine plant was held with affiliated persons. The ownership structure of Inkombank's 25.1 percent stake in the Sukhoi aviation plant is unclear.


If any assets have been stripped, only the fiercest of liquidators will succeed in recovering them, Hainsworth said.


The courts will likely ensure that depositors are repaid, but the drive to reimburse creditors might not be as strong.


"Once you take the population out of the loop, the political will to go for the rest of the assets disappears," Hainsworth said.


A club of 20 foreign creditors led by Deutsche Bank had been negotiating with previous management before Vinogradov stepped down. With whom the club is negotiating now is unclear. Deutsche Bank officials would not comment on the talks.


Deutsche Bank for a period was rumored to be considering taking over its Russian debtor. One of the most active foreign banks working in Russia, Deutsche recognized the value of Inkombank's established retail network and, with the appropriate bending of legal restrictions on foreign banking, could have founded its own retail business on Inkombank's carcass.


But as Deutsche prepares to write off millions of dollars in losses in its Russian trading activities, the bank's management could be hard pressed to invest further in Russia.


"If I were on the board of directors of Deutsche Bank sitting in Germany, looking at Russia today and after swallowing the Russia losses, I think I would be reluctant to send more resources in the same direction," Hainsworth said.


A second foreign savior, the European Bank for Reconstruction and Development, dropped out of the running when it wrote off its 1.65 percent ownership in Inkombank last month.


National Reserve Bank is still seen as a contender, depending on whether Gazprom can afford to bail out a giant Russian bank as it struggles with its losses. Gazprom, which bought 13 percent of Inkombank this spring, has an interest in seeing it survive.


NRB chairman Alexander Lebedev as recently as Nov. 17 declared the bank's interest in rehabilitating Inkombank. But NRB appears interested only in preserving the retail network without taking responsibility for Inkombank's foreign debt.


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The Living Dead


Assets: 35 billion rubles as of July 1


Retail Network of 118 branches


Equity Stakes as of Jan 1


Magnitogorsk Steel (26 percent)


Rot Front (51.5 percent)


Babayevskaya (51 percent)


Omsk Bacon (49 percent)


Novosibirsk Margarine Factory


(91.7 percent)


OAO Sukhoi (25 percent)


Liabilities


500 million rubles and $300 million


owed to depositors


$830 million in foreign loans


$1.2 billion for currency forward contracts