Anyone know more about this guy? I used to know a Russian professor of history here by that name. jks ------------
This was a Kommersant-Vlast piece we translated and ran. Very boring, but informative.
Chris Doss The Russia Journal ----------------------------
This article was published in The Russia Journal ISSUE No.2 (145), DATE: 2002-01-25
---------------------------------------------------------------------------- ---- WHO OWNS RUSSIA: Russia’s banking sector. The situation today.
By MAXIM BUILOV / Kommersant-Vlast As of Oct. 1, 2001, more than 1,300 lending institutions were active in Russia. More than half of these were at least partially owned by the state. Nobody knows exactly how many have state participation. In July of last year, the government attempted to carry out an inventory of its investments in the banking sector and counted 469 banks belonging to the state. State organizations hold controlling stakes in 36 of these banks and blocking shares in 45 of them.
The government’s tally wasn’t very accurate, however. Indeed, the government made no secret of the fact that it had not included banks with the Central Bank participation in its count. This meant Sberbank and Vneshtorgbank weren’t on the list, nor were Russian offspring of the former Soviet foreign banks, such as Vneshekonombank.
In October, Prime Minister Mikhail Kasyanov received the list. Information on bank balances alone showed that federal and local authorities or state-owned companies had stakes in 638 banks. The state had a controlling stake in 62 of these and a blocking share in 80. When banks whose balances didn’t show their links to the state were included, the total number of banks in which the state held shares or stakes rose to 679. Nothing much has changed since then, and for a simple reason: Russian bank managers seldom have a free hand to work without having to look over their shoulders at their owners.
Of all bank owners, the state is the least demanding. But those banks still in the state orbit end up having to serve their owners’ interests to the full. Usually this means they have to lend to state organizations no matter how slim the chances are of ever seeing the money returned. Banks servicing the agricultural sector, for example, go bankrupt with amazing regularity no matter what name they are given, Agroprombank, Rosselkhozbank, or any other.
Other dangers may be in store for state banks. After the latest change of power at the Railways Ministry, for example, the decision was made to transfer financial flows from Zheldorbank, which traditionally serviced it, to Transkreditbank, recently bought by the Railways Ministry. But, now that Railways Minister Nikolai Aksyonenko is under investigation, this bank, too, might have to worry about its future.
The largest state banks – Sberbank and Vneshtorgbank – belong to the Central Bank. Many critics of the current system say it makes no sense to have a banking supervisory body owning banks subject to its authority, and this has aroused protests from international financial organizations that insist these banks be privatized. But the Central Bank cannot just pull out of these banks as rapidly and easily as some would like. The banks in question are too large to be sold quickly; they account for around 30 percent of assets in the Russian banking sector. The only rapid solution would be to hand the banks over to the government, for example, but this would not be the same thing as privatization and would see them remain in state hands.
Under government pressure, however, the Central Bank has had to examine its withdrawal from the capital of Vneshtorgbank and even name 2003 as a deadline for when this could actually go ahead. But this process could end up taking years. Talk about the Central Bank pulling out of Sberbank’s capital has not reached any definitive conclusions yet. The problem is not just that Sberbank’s assets are almost five times greater than those of the Vneshtorgbank, the country’s second-biggest bank. The problem is that Sberbank holds three-quarters of deposits – 400 billion rubles in total. If depositors have even the faintest doubt that something might be up with Sberbank, they could bring it down.
There is another large state-owned bank – Vneshekonombank – but it is an exceptional case. For a start, Vneshekonombank has no license for the Central Bank to revoke. This lack of a Central Bank license also means that Vneshekonombank cannot be bankrupted, regardless of the state it is in.
Vneshekonombank cannot exactly be described as glowing with health. It carries the burden of all the former Soviet debt – trillions of rubles. Formally, Vneshekonombank is the largest Russian bank but, technically, it is not a bank at all, since it has no license. If the Central Bank did decide to issue Vneshekonombank a license, it would have to revoke it immediately because the law says that banks with capital sufficiency of less than 2 percent must be brought under the management of the Agency for the Restructuring of Credit Organizations (ARCO). The weight of the Soviet debt means that Vneshekonombank’s capital sufficiency indicator is less than 1 percent. But the government will not allow ARCO to take over management of the debt.
If Vneshekonombank were divided into a bank and a debt agency, it would still be one of the largest in the country. In size, it would be comparable with Vneshtorgbank. This was the way that Vneshtorgbank itself appeared on the scene. Now the government wants not only to separate the banking and debt management functions of Vneshekonom-bank, but also to merge the resulting new bank, which would be called Vneshekonombank of Russia, with another state-owned bank, Roseksimbank.
Not only does the Central Bank participate in Vneshtorgbank’s capital, Vneshtorgbank director Yury Ponomaryov is considered one of Central Bank Chairman Viktor Gerashchenko’s people. Sberbank, on the other hand, though it belongs to the Central Bank, is seen as neutral, and its head, Andrei Kazmin, as loyal to everyone at once. Vneshekonombank is seen as being close to the government by virtue of the good personal relations between its head Andrei Kostin and Prime Minister Mikhail Kasyanov.
Aside from Vneshekonombank and the banks belonging to the Central Bank, the state banks included in financial magazine Dengi’s list of Russia’s 20 largest banks by size of assets are of two types. Gazprombank, for example, is the settlements bank for state-owned gas giant Gazprom, and the changes at Gazprom and Gazprombank that began after the departure of former Gazprom boss Rem Vyakhirev will not change this bank’s status. As the bank is well-fed by Gazprom’s financial flows, it has a relatively solid position. Its only real drawback is that its prosperity depends entirely on that of Gazprom, its largest shareholder.
The other category of state banks includes banks that belong to the regional authorities. Of these banks, the Bank of Moscow and Bashkreditbank are among the top 20 banks. They serve the needs of the Moscow and Bashkortostan authorities, respectively. For the Bank of Moscow, its situation depends on the personal relations between its head Andrei Borodin and Moscow Mayor Yury Luzhkov, while for Bashkreditbank, the same goes for relations between its head Azat Kurmanayev and President of Bashkortostan Murtaza Rakhimov.
But Gazprombank, the Bank of Moscow and Bashkreditbank essentially all belong to the same category in that they are all settlement banks. The only difference between them is that Gazprombank serves the interests of a given company, while Bank of Moscow and Bashkreditbank serve the interests of the regional authorities.
State companies and regional authorities are not the only ones to have their own settlement banks. A number of private companies have also set up banks to serve their interests. Some of these banks are quite sizeable; Surgutneftegazbank, which serves private company Surgutneftegaz, is one example. But large banks of this type are the exception rather than the rule.
Settlement banks account for a large chunk of the Russian banking sector overall. Most of them are small- or medium-sized – logically enough, given that most companies in Russia are small- or medium-sized. The founding companies themselves prevent these banks from expanding, as they prefer to deal with a bank that is small and free of problems.
Some of the large banks such as Trust and Investment Bank and Menatep St. Petersburg, which traditionally serve the interests of the Yukos oil company and Rosbank, which serves the Interros Group, can also be put in the settlement banks category. But these banks, though closely linked to their founding companies, have also worked to develop business with other clients as well. The same goes for Alfa Bank, which serves the interests of Alfa Group.
All these banks have one thing in common: They are all old banks, by Russian standards. They had all reached a considerable size before the banking crisis of 1995. The main difference between them and classic settlement banks is that it was they (or the banks whose business they inherited) who bought up companies and created holdings, rather than the other way round. Since the time they were acquired, these companies have grown and are now much larger than the banks that once created them.
For example, Mikhail Khodorkovsky, when he was head of Menatep Bank, the successor of which is Menatep St. Petersburg, acquired major oil company Yukos at a loans-for-shares auction at the end of 1995. He then organized the Rosprom Group, which he heads, bringingYukos and Menatep under the new group’s control.
Another example is Vladimir Potanin, who quit his job as president of Oneksimbank, the successor of which is Rosbank, to become first deputy prime minister. It was in this capacity that he organized the loans-for-shares auctions. At one of these auctions, Oneksimbank acquired Norilsk Nickel. After his spell in the government, Potanin returned as head of Oneksimbank. Like Khodorkovsky, he decided to become head of the group he had established and, in April 1998, traded the job as bank head for that of head of Interros, of which Oneksimbank is a part.
Of all the acquisitions made by head of Alfa Bank Mikhail Fridman, Tyumen Oil Company (TNK), the ONAKO oil company and VimpelCom are the most prominent.
Until the 1998 financial crisis, the large banks actively bought up shares in less-well-known companies all around the country, usually with speculation in mind (it wasn’t their aim then to create financial-industrial corporations or holdings). The end result was the emergence of various large and not-so-large financial-industrial groups.
This perhaps explains why, after 10 years and two crises, the banks that have managed to survive have become Russia’s largest private banks. More recently, Andrei Melnichenko, who began with a currency-exchange outlet and built it up into MDM Bank, follows the same pattern. After the 1998 crisis, he created the MDM financial-industrial group. By 2000, MDM Bank was among Russia’s 20 largest banks, and is still in a strong position. Avtobank recently joined this list, acquired by the Sibal Group.
The only banks that look out of place on the top 20 list today are the International Industrial Bank (MPB, headed by Sergei Pugachev) and Globex. These two banks
belong to various stakeholders, but no one owns a large stake. It is impossible to say with certainty exactly who owns the stakes and how they are distributed. It is a fair assumption that numerous small and unrelated shareholders own both banks, but this would mean that MPB, Russia’s third-largest bank, does not really belong to anyone. Globex, with its 20 billion rubles worth of net assets, is in the same category. But these two banks are nonetheless an exception among Russia’s big banks.
Foreign banks in Russia are a case apart. As of July 1, 2001, there were 133 banks in Russia with some degree of foreign investment. Two-thirds of these banks are located in Moscow, but only 23 of them are fully foreign-owned. In another 34, foreign investors hold more than 20 percent of shares and, in 46, foreigners hold less than 1 percent.
This explains why, in its statistical reports, the Central Bank includes among banks with foreign participation such banks as Avtobank, which counts the EBRD as a shareholder, and Vozrozhdeniye, which has the Canadian Imperial Bank of Commerce as a shareholder. The list also includes Evrofinance and Mosnarbank, which have Russian foreign-based banks belonging to the Central Bank among their shareholders.
But when talking about foreign banks in Russia, people usually have in mind the Russian subsidiaries of large Western banks. The Russian top 20 banks list includes subsidiaries of such well-known banking groups as American Citibank, Austrian Raiffeisenbank and German Deutsche Bank. Formally, these banks are Russian legal entities, though their Russian clients think of them as fully-fledged representatives of their parent banks. In reality, when problems arise, the parent banks do help their Russian "children" so as to keep their name and reputation intact. But they are not obliged to do this, and in the event of serious difficulties can always refuse to settle the Russian banks’ debts.
The only foreign bank not fully controlled by some Western group is Moscow International Bank (MMB). Several large foreign banks are among its shareholders, while Rossiisky Bank and Roszagranbank also hold stakes. But MMB does have a purely Russian shareholder – the Central Bank. The Central Bank’s share is not large, however, and does not even constitute a blocking share.
But a large Western bank has begun showing an interest in MMB of late. After German HypoVereinsbank, a major shareholder in MMB, bought Austrian group Bank Austria Kreditanstalt, MMB took over Austria Kreditanstalt’s Russian subsidiary. Now, if HypoVereinsbank wanted to develop its own independent business in Russia without using MMB as a base, it could do it through Bank Austria (Moscow), which it now owns 100 percent. If HypoVereinsbank weren’t interested in doing business in Russia, it would not have bothered merging MMB and Bank Austria.
But even this merger didn’t give HypoVereinsbank a controlling stake in MMB. The rules of the game abroad, however, are different to those practiced in Russia. In Russia, if you don’t have a controlling stake in a company or bank, you can expect to be kicked out of the business at any moment. What is more, the experience at Legprombank proved that where minority stakeholders recently joined forces to remove the controlling stakeholder – even when you do hold the controlling stake – you cannot feel secure.
But in the West, pulling a cunning stunt to force someone out of business is seen as shameful behavior rather than a display of genius. Therefore, it is entirely possible that HypoVereinsbank was not in fact seeking to get the controlling stake in MMB.
Overall, foreign banks have become more active of late on the Russian market. Previously they did not make such an attempt to mark their presence in Russia. Their interest, it seemed, was only in being able to say to their clients that, since the devil had possessed them to go to Russia, they would try to serve them there.
But this situation has changed completely now. Bank Austria and Raiffeisenbank began serving Russian clients in 1999. MMB was already serving Russian clients, but after it bought Bank Austria, it stepped up work with depositors. On the household-deposits market, Sberbank is the clear leader, with over three-quarters of all deposits (none of the foreign banks have even 1 percent of the market), but on the foreign currency deposits market Sberbank has less than half of all deposits, while Raiffeisenbank and MMB have almost 2 percent each and their share has been increasing rapidly as of late.
ING-Bank has already begun following in their footsteps, while Deutsche Bank and Citibank have announced similar plans. These plans concern not only private depositors. Previously, foreign companies made up the bulk of foreign banks’ clients, but now more and more Russian companies are turning to their services. Given that Russia is currently one of the fastest-developing markets, foreign banks will be set to increase their presence over the coming years.