September 29, 2011 / 12:00 PM / 7 years ago

UPDATE 2-Russia's VTB buys 81 pct in BoM, ends long battle

* Deal unlocks bailout loan of 295 bln rbls

* Loan to be reinvested in special issue of government paper

* VTB to inject up to 100 bln rbls into BoM, dilute minorities

* Sees BoM net profit rising tenfold over two years (Adds details, quotes, background)

By Katya Golubkova

MOSCOW, Sept 29 (Reuters) - Russia’s VTB cleared the way for a $9.2 billion bailout loan for Bank of Moscow by buying out the largest minority shareholder and ending a battle for control over the failed lender that it still sees as a source of growth.

VTB, Russia’s No.2 lender with assets of $148 billion, moved on Bank of Moscow after President Dmitry Medvedev sacked the capital’s mayor Yuri Luzhkov last September, whose successor Sergei Sobyanin sold a strategic stake to VTB.

State-controlled VTB, the former Soviet foreign trade bank that has built a major investment-banking platform as part of an ambitious growth drive, paid 103 billion roubles ($3.2 billion) to get a 46.48 percent stake in Bank of Moscow.

The deal included a 25 percent stake in insurer Stolichnaya Strakhovaya Gruppa, which itself owns 17.32 percent in Bank of Moscow.

But VTB struggled in a battle for control with Bank of Moscow’s former Chief Executive Andrei Borodin, a Luzhkov ally, discovering only after Borodin was ousted in April that nearly half of the bank’s loan book was doubtful.

On Thursday, VTB raised its stake in Bank of Moscow to 80.57 percent, opening the door for the state Deposit Insurance Agency (DIA) to provide funds to shore up Bank of Moscow, which is now Russia’s seventh-biggest lender by assets.

The deal took time for VTB, as it had to buy out around a 20 percent stake from Kremlin-connected businessman Vitaly Yusufov, who acquired the stake from Borodin in a deal financed by a loan from Bank of Moscow.

VTB declined to specify the price of the deal or name the minority shareholders who sold to it, but the Interfax news agency quoted a source as saying that Yusufov had sold his stake. Reuters could not reach Yusufov for comment.

It took only two hours for Bank of Moscow after the VTB deal to get a 10-year low-interest loan of 295 billion roubles from DIA, which will be reinvested into a special issue of Russian OFZ treasury bonds done to absorb liquidity and limit any possible inflationary pressures that might result from the loan.

That will allow Bank of Moscow to book an accounting gain of 150 billion roubles to cover the worst part of its bad loan portfolio, which, according to VTB, emerged from lending operations approved by former Bank of Moscow’s top management.

Russia’s Finance Ministry is technically ready to issue special OFZ treasury bonds to Bank of Moscow on Friday, Deputy Finance Minister Sergei Storchak told journalists.


VTB may inject up to 100 billion roubles to boost Bank of Moscow’s equity by year-end via an additional share issue, Bank of Moscow CEO Mikhail Kuzovlev told journalists this week.

The latest move may prompt the remaining Bank of Moscow shareholders to sell their stakes before year-end.

“The additional share issue (of up to 100 billion roubles) will dilute the stakes of remaining shareholders,” said Leonid Slipchenko, an analyst with Uralsib.

After Bank of Moscow’s books are cleaned up, the lender will boost VTB’s role on the Russian banking scene, cutting the gap in terms of assets with state-controlled market leader Sberbank .

“Integration of Bank of Moscow ... will significantly enhance the group’s position on the Russian banking market, increase the group’s branch network and improve the quality of products and services,” VTB CEO Andrei Kostin said in a statement.

Bank of Moscow plans to post around 3 billion roubles in net profit this year, compared with VTB’s overall target of 100 billion roubles. In 2013, VTB sees Bank of Moscow’s bottom line at 30 billion roubles, which would be a record.

Senior management has moved to a new office on Trubnaya Square, a few kilometres from Bank of Moscow’s old headquarters, citing the “bad aura” of the offices used by Borodin.

Borodin, who fled Russia in March, was charged in absentia on Thursday with fraud in connection with a $390 million loan to a firm controlled by Luzhkov’s wife, property developer Yelena Baturina, Interfax reported. Borodin has denied any wrongdoing.


The collapse of Bank of Moscow, where loans of total almost 370 billion roubles are considered doubtful, has exposed glaring failures of oversight by regulators who were apparently intimidated by close management ties to Luzhkov.

The head of banking oversight at Russia’s central bank resigned shortly after the biggest ever bailout in the Russian banking sector was approved in July.

Senior bankers have told Reuters that investors are concerned that the balance-sheet woes uncovered at Bank of Moscow may not be isolated, leading them to shun banking stocks in Russia.

“There was no single investor who did not ask this question (on Bank of Moscow bailout),” Anton Karamzin, a Chief Financial Officer with Sberbank, told the recent Reuters Russia Investment Summit.

$1 = 31.746 Russian Roubles Additional reporting by Maya Dyakina, Editing by Douglas Busvine and Erica Billingham

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