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. Last Updated: 07/27/2016

EBRD: Tokobank Case a Disgrace




The European Bank for Reconstruction and Development on Monday attacked the bankruptcy process of one of Russia's failed banks and said it would scare away future investors.


The EBRD has already been forced to write off a $35 million stake in Tokobank, once one of the top 20 banks, which ran into trouble in May 1998. Its license was withdrawn in September and it was declared bankrupt in December.


"This particular case is a disgrace," David Hexter, EBRD deputy vice president, said at a news conference on the bankruptcy process and division of ass ets of Tokobank.


"It does not respect creditors' rights. It does not respect shareholders' rights. It is a model of how not to conduct a liquidation," he said. "This is one example of how Russian creditors, Russian investors are going to be scared away."


The EBRD, Russia's largest foreign direct investor, is a shareholder in the bank, while the German Investment and Development Co. is a creditor.


Hexter quoted the World Bank as estimating the top 30 Russian banks had negative equity of $10 billion to $15 billion. The Central Bank has not restructured a single bank yet.


Hans-Georg Hansmann, head of investment operations for German Investment and Development, said he despaired of recovering 35 million German marks ($19 million) lent to Tokobank.


Liquidation of the bank was progressing according to a plan devised at a creditors meeting where foreign creditors were marginalized and alleged creditors, who were later struck from the list, took a leading role.


A court blocked the plan but was moving too slowly, Hansmann said. Assets would be gone, or stripped, before the law acted.


"The decision of the court of appeal may be of no real value as all valuable assets of Tokobank, in all probability, will have gone."


The EBRD has been heavily criticized for not acknowledging bank problems earlier, though Hexter responds that going public with Tokobank's problems would have made the bank's situation even worse.


The EBRD held a 10 percent stake in Tokobank that it has written off. EBRD officials say the bank remained a shareholder since a Tokobank administrator had refused to acknowledge last year's EBRD exercise of an option to swap equity for debt.


"It is not a question of the law. It is a question of the execution of the law," Hexter said. Both he and Hansmann declined to say why the law was not being followed. The EBRD also has a stake in another troubled bank, Inkombank, which faces a bankruptcy hearing in May.