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. Last Updated: 07/27/2016

Sberbank Drops Tainted PwC

No. 1 bank Sberbank has split with PricewaterhouseCoopers, members of the bank's board of directors said Thursday, a day after opting to not renew its contract with the auditing giant.

The move comes just after PwC spoiled an oil major's $500 million Eurobond issue and months after a raucous scandal surrounding a controversial audit of gas monopoly Gazprom.

The board of directors at state-controlled Sberbank on Wednesday chose Ernst & Young as the bank's new auditor following an open tender announced May 15, said the board members, who asked not to be identified. PwC had audited Sberbank since 1995.

Sberbank, PwC and Ernst & Young declined to comment.

The bank's board on April 26 decided to hold the tender at the behest of minority shareholders. A representative of Hermitage Capital Management, which is headed by outspoken foreign investor William Browder, complained at the meeting that Sberbank should hold a tender to choose an auditor in accordance with a law on auditing approved in September 2001. The law states that companies with government stakes of more than 25 percent must choose an auditor based on a tender.

The bank had no intention of changing auditors until Hermitage brought up the issue of the auditing law at the meeting, the minority shareholders said.

Analysts said that appointing a new auditor is an important decision and usually takes more than two weeks.

"Though I have nothing against Ernst & Young, I am surprised at such a quick decision," said Andrei Ivanov, banking analyst with Troika Dialog.

Auditing industry officials said PwC had committed no errors in its Sberbank audits, but they saw the move as positive since companies should rotate auditors regardless of their performance.

"In the West it is generally accepted to rotate auditors every five to seven years," said an official at a Russian auditing firm who declined to be identified.

PwC will lose between $2 million and $3 million annually, according to various estimates, but Sberbank's decision will do even more damage to the firm's reputation, shareholders said.

"Half the value of the auditor is its name," said Vadim Kleiner, who represents Hermitage on Sberbank's board. "After the questionable activity in Gazprom, they already had lost the confidence of the market."

PwC said Wednesday that it had rescinded its seal of approval on its audits of Tyumen Oil Co.'s 2000 and 2001 financials, sending the oil major's $500 million Eurobond issue into a tailspin.

PwC was still reeling from criticism over its handling of an audit of Gazprom's relationship with Florida-registered gas trader Itera. Investors called the audit sloppy and PwC has been hit with a series of lawsuits.

The Finance Ministry earlier this month began investigating PwC following complaints from investors, including Hermitage, who asked the ministry to revoke the auditor's license.