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. Last Updated: 07/27/2016

Hot New Banks Are Same Old Oligarchs




Impexbank. Rosbank. Soyuzbank. Menatep St. Petersburg.


If you haven't heard of these companies, you probably soon will. These are the up-and-comers of the Russian banking industry. But don't be fooled by the shiny new nameplates out front - inside it's the same old cast of characters from once-mighty financial structures like Rossiisky Kredit, Uneximbank, Bank SBS-Agro and Bank Menatep.


Newcomers like Impexbank and Soyuzbank are the heirs apparent of the so-called oligarchs, and their vaults hold assets quietly shifted over from their ailing parent companies.


They employ the same managers, who work from the same computer terminals handling the same assets and clients. Depositors and creditors can shake their fists in vain - but oligarchs like SBS-Agro founder Alexander Smolensky, Menatep chief Mikhail Khodorkovsky and Uneximbank founder Vladimir Potanin have slipped smoothly back into business.


On Thursday, SBS-Agro - which was Russia's largest private savings bank until the government toppled it, by defaulting on its treasury bills and devaluing the ruble - announced it would change its company name to Soyuz.


Russian media reports have alleged that SBS-Agro - which has received hundreds of millions of rubles in so-called stabilization loans from the Central Bank, and has been deputized to distribute similar amounts as agricultural credits - is also quietly transferring its liquid assets to a small institution called the First Mutual Credit Society.


SBS-Agro spokesman Sergei Meshcheryakov denied reports that the bank is trying to use Soyuz or First Mutual Credit Society to wriggle out of its debts. But he added, "Of course we cannot rule out that some of our old clients will open accounts in the new [Soyuzbank]."


Meanwhile, those middle-class Russians who had savings accounts at SBS-Agro have been offered office furniture or junk agrobonds instead of cash. SBS-Agro representatives concede it may be hard for the average Russian to figure out what to do with an agrobond - but insisted they have value nonetheless.


SBS-Agro, or Soyuz if you please, is treading a well-worn path. Peers like Uneximbank, Bank Menatep and Bank Rossiisky Kredit have for months been feverishly shifting whatever is left of their assets into small but clean banks. All say they are in the process of "restructuring" their liabilities to creditors. Rossiisky Kredit, for instance, says that it is in the process of restructuring its $650 million in debts to foreign creditors - but in the meantime says it has also been given Central Bank approval to transfer its assets to an obscure bank called Impex.


Uneximbank, which has foreign debts to the tune of $525 million, has been handing profitable businesses over to newly-formed Rosbank. Potanin, as head of the Interros financial holding, controls Rosbank just as tightly as he ever did Uneximbank.


Bank Menatep, another organization with hundreds of millions of U.S. dollars in debts, simply sold its stake in its St. Petersburg subsidiary to Yukos-Rosprom - a financial holding company run by Menatep founder Khodorkovsky. Since then, Menatep St. Petersburg's charter capital has mystifyingly risen several-fold, in what analysts say looks suspiciously like a transfer of assets from the parent bank.


Immediately after the August events toppled Russia's mightiest banks, a number of smaller financial institutions stepped forward. Rating agencies were reporting that second-tier companies like Probiznesbank, MDM Bank and Avtobank were seeing an influx of retail and corporate clients and might rise to replace the "oligarchy" - a term used for leading financial houses because it captures the idea that these organizations owe their wealth to government connections.


There has even been talk that the crisis might have been a cathartic experience, one that by destroying the bad old banking system had cleared the way for something new and better.


Today, however, it seems more and more clear that nothing new is being created. Instead, it's the same old story: With the right connections, a bank can survive and prosper regardless of whether it operates efficiently, or even whether it bothers to pay its depositors and creditors.


Of course, one has to have those connections - something the once-proud Inkombank seems to lack. This was once Russia's third-largest retail institution, but amid media reports that Central Bank chairman Viktor Gerashchenko dislikes Inkombank founder Vladimir Vinogradov, it is sinking fast.


On the other hand, Smolensky's SBS-Agro - despite owing money to millions of ordinary Russians - has been deputized to disburse large government loans to "support agriculture." SBS officials have freely admitted they handed out some of the money the Central Bank has given them to political organizations - which in Russia might well be the economically logical thing to have done."Everyone knows what the oligarchs are up to now," said Andrei Piontkovsky, director of the Center for Strategic Studies. "And Gerashchenko and the Central Bank are closing their eyes to the whole thing - even helping them."


"Even if [the authorities] hope to save socially important banks, why save their masters?" Piontkovsky said.


It is not unusual for a sick bank to set up a new entity to help bail itself out. Such a "bridge bank" is usually temporary. It serves the bank's existing clients, while the old bank restructures its debts.


This has worked well in Eastern Europe, for example. But analysts were unanimous in panning its execution so far in Russia - where, for example, Avtobank announced last week it would use a soft 500 million ruble ($21.9 million at Saturday's official rate) stabilization loan from the Central Bank to ... invest in a struggling car manufacturer in Nizhny Novgorod.


"In Russia there is almost no Central Bank control over the creation of the new bank and the redistribution of assets and debts between the old and new structures," said Andrei Ivanov, a banking analyst at Troika Dialog. "The other amazing fact is that unlike in the West, creditors of the old bank are not involved in the process."


Weak bankruptcy legislation and the fact that previous managers are allowed to take up posts at the new banks makes the bankers' position safe as can be, Ivanov added.


"The problem here is that once they move the business over to the clean bank, creditors no longer have access to the cash flows and are left to fight over a bunch of dead assets," said Margot Jacobs, a banking analyst with United Financial Group.


Even so, it remains to be seen whether a Rosbank or a Menatep St. Petersburg will ever rise to the might of its famous ancestor. The oligarch-financiers are poorer than ever, and more dependent on the state than ever, and their reputations have been discredited by a spectacularly public fall.


"Even after the [oligarchic] banks complete the transfer [of assets], they will find the going tougher than before," Ivanov said. "There is now a chance for a market-style banking sector, as small efficient banks can also hope to thrive."