TROUBLE AND STRIFE

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TROUBLE AND STRIFE:
THE RUSSIAN BANKING SECTOR IN 2004 
– WELL AFTER THE HONEYMOON




                                              Vladimir Berezansky Jr.
                                              The PBN Company,
                                              provides his unique
                                              account of the year
                                              in banking

Dr. Samuel Johnson famously quipped           promised,’ meaning implementing              keep an eye out for those dodgy Siloviki
that a second marriage is the triumph         necessary structural reforms in areas        chaps with whom he’s been spending
of hope over experience. To put things        such as banking law, bankruptcy,             more and more time. They don’t really
in context, the recent contretemps over       and other highly market-sensitive            seem to know what they’re doing. But
issues both relevant (such as Yukos) and      administrative-regulatory functions. ‘But    his other mates – Gref, Kudrin, Vyugin,
peripheral (such as the Ukrainian elec-       Daphne, dear, I have a war on terrorism      and others – have not left his side. Per-
tions) between Russian and Western            to fight. You remember Beslan . . .’.         haps Vladimir will begin listening more
counterparts in the Russian FDI and              What would the marriage counsellor        carefully to their increasingly contrary
portfolio markets can be compared to          say? Vladimir did make an effort. In fact,   assessments of how he’s doing.
newlyweds – each with ‘a past’ – who          he implemented a significant change to
find themselves taking a cold, hard look       the banking legislative regime by requir-    2. The Summer Crisis
at the person to whom each has once           ing compulsory deposit insurance with        Vladimir did seem to go bonkers for a
again plighted his (or her) troth. Each       the Russian Central Bank by all domestic     few weeks in May and June. That made
half of this couple went through a torrid,    retail banking entities. Yes, he did prom-   us very nervous indeed, especially since
head-spinning relationship that ended,        ise Daphne a good deal more in 2004,         the cause was apparently self-inflicted.
in 1998, in the Mother of All Divorces.       and – truth be told – he has not deliv-      After all, why withdraw Sodbizness-
So while the respective partners to this      ered. But Vladimir appears to be making      bank’s licence – that dreadful name not-
second-time-around pairing dearly want        a good-faith effort to audit all domestic    withstanding! – straight out of the blue?
to make this relationship work, more and      banking players – even snatching away        Didn’t he realise that such a precipitous
more of their ‘discussions’ begin with        licences here and there to show that he      move would spook the markets and
‘Why do you always . . . ?’. Although         can indeed regulate.                         cause a liquidity crunch? Yes, many of the
cooler heads might prefer not to get in-         After all, besides Daphne, Vladimir       domestic banks have engaged in shady
volved, let’s jump right into this increas-   needs to mollify those ogres in Paris –      – and sometimes just shoddy – AML
ingly tempestuous dynamic and try a           the OECD’s Financial Action Task Force       practices. And the point about FATF’s ex-
little role-playing.                          (FATF). They made it clear that Vladimir     pectations is well taken. But that run on
   Bon. So the bloom is off the lily, and     was being removed from the FATF’s            the banks by the babushki did seem a bit
it’s time to do some careful reassessing      Black List of Non-Cooperative Countries      . . . well . . . scripted.
of whether we can hold things together        & Territories on the specific understand-         Prior to the May mini-meltdown,
for the long haul. While the Other Half is    ing that he get serious about regulating     many Russian banks had been engaging
pretending to enjoy the Winter Holidays,      his banks – especially for effective Know-   in fairly rough-and-tumble press and
let’s make a list and check it twice:         Your-Customer and anti-money launder-        PR campaigns against each other. The
                                              ing (AML) practices.                         Russian business newspapers and jour-
1. Structural Reforms                            So what say, Daphne? Shall we give        nals – never known for their principled
Here’s our biggest complaint with The         Vladimir one more try in 2005 to show        objectivity – had been printing more and
Spouse. ‘You have not done what you           his ardour on this score? We’ll need to      more – what does he call that? oh yes

48 • Russian Investment Review •
                                                                                                                 banking


– kompromat (attack journalism). No one         partial ownership interest in Vnesh-       complete certain prerequisite administra-
seemed to realise or care that by attack-       torgbank                                   tive procedures with the Russian Central
ing each other’s reputations and business            However, foreign players in the       Bank.
dealings so aggressively, they were deni-       Russian banking sector are under-             Finally, market analysts are closely
grating the entire Russian banking sector.      standably charier of such significant       following rumoured cross-border M&A
   Marriage Counsellor: Daphne, it’s not        acquisitions – and the concomitant         discussions between (primarily) Russian
fair to blame Vladimir for the question-        exposure – than their domestic coun-       and Kazakh and Russian and Ukrainian
able business ethics of private domestic        terparts. M&A activity among Russian       banks. Kazakhstan’s domestic banking
banks – especially after giving him such        banks in 2004 included:                    sector, although smaller than Russia’s,
grief for building his Vertical of Power        • Vneshtorgbank’s (slightly dodgy)         is in significantly better structural shape
when you were just getting acquainted.          acquisition of GutaBank and its more       thanks to the concerted efforts of that
Yes, perhaps his timing and style in con-       orthodox purchase of an additional         country’s former Central Bank Chairman
fiscating Sodbiznessbank’s licence was           25% of Promstroybank                       Grigory Marchenko. And December’s
typically ham-handed. But you’ve always         • The merger of Uralsib and Nikoil         Ukrainian election results have raised
loved his certain Slavic, emerging-market       banks (Nikoil itself had already ac-       hopes that that country will soon be pre-
je ne sais quoi. I mean, you could have         quired Avtobank and several smaller        pared to address longstanding structural
done what your mother told you after            regional banks)                            deficiencies in its banking sector and
1998 and stayed out of Russia. There are,       • LUKOil’s decision to sell its con-       financial markets. President-Elect Viktor
after all, plenty of nice English lads . . .    trolling interest in Petrokommertsbank     Yushchenko has extensive experience
   Daphne: You’re our marriage counsel-         to the IFD Capital Group                   in the Ukrainian banking sector includ-
lor, not my mother! Besides, there are real     • In July 2004, Rosbank announced          ing serving as the head of the Ukrainian
issues, here. Who went after Alfa Bank          its acquisition of OVK Group, which        National Bank, where he managed the
once GutaBank began to sink? And how            thereafter commenced with re-brand-        introduction of the new Ukrainian cur-
is it that GutaBank was snapped up by           ing under the Rosbank name                 rency, the hryvna. These factors, albeit
Vneshtorgbank for a song – for the price        • Other M&A rumours abound in              unrelated to Russian regulatory or ad-
of a brand-new Volga with all the Nov-          the Russian media; but the current le-     ministrative policies, have encouraged
orussky extras? How can these things go         gal-regulatory regime in Russia tends      cross-border M&A initiatives among
on if he wants to be taken seriously by         to hinder rather than facilitate these     these CIS states.
me or anyone else? In retrospect, these         tendencies.
certainly seem harbingers of the Baikal                                                    Looking Forward
Finance Group and ...                            In addition, market analysts anticipate   In an earlier era of television broadcast-
   Marriage Counsellor: Daphne, let’s          that core assets of Paveletsky Bank and     ing, daytime soap operas would regular-
stick to one issue at a time, and not get                                                  ly end with syrupy organ music, while a
sidetracked. Vladimir, you’ve been rather                                                  throaty baritone voice-over would intone
quiet. Any thoughts?                                                                       provocative questions such as ‘What will
                                                  Both international and
   Vladimir: Happy New Year! Happy                                                         become of our star-struck lovebirds?’
Christmas! I loff you!                            domestic institutions                    Will Vladimir make good on his previous
   Marriage Counsellor: Yes, well he’s cer-       determined that there                    promises to Daphne and follow through
tainly enjoying the spirits of the Season.                                                 on as yet unimplemented structural re-
Shall we press on?                                are undervalued                          forms? Will Daphne decide that her com-
                                                  assets that merited                      mitment to Vladimir is indeed for the in-
3. Mergers & Acquisitions                                                                  definite future, and that her love for him
Notwithstanding the absence of sweep-             snapping up                              can endure the ups and downs of their
ing structural reforms in 2004, the Rus-                                                   occasionally turbulent relationship? For
sian banking sector experienced a rash                                                     those already caught up in the dynamic
of mergers & acquisitions. Clearly both        Dialog-Optim, two banks currently in        of this soap opera plot, there can be little
international and domestic financial            bankruptcy proceedings, will likely be      choice but to tune in next week. But for
institutions determined that there are         purchased by domestic rivals. But these     those who haven’t yet acquired a taste for
undervalued banking assets that merited        developments have not occurred without      this excessively dramatic genre, it may
snapping up. Among the major multina-          controversy. BNP Paribas’ acquisition of    be more difficult than in previous years
tional acquisitions:                           a 50% stake in Russky Standart triggered    to attract and hold their interest. And to
                                               an investigation by the Russian Federal     her pleasant surprise, Daphne continues
 • GE Customer Finance purchased               Anti-Monopoly Service. And BNP Pa-          to receive sometimes subtle and occasion-
 DeltaBank                                     ribas recently initiated legal action in    ally overt expressions of interest from a
 • BNP Paribas acquired 50% of                 England’s High Court over the same as       Chinese gentleman, from a handsome
 Russky Standart                               yet uncompleted transaction. BNP Pari-      Brazilian widower, and from a quite sub-
 • Deutsche Bank AG was rumoured               bas alleges that Russky Standart has not    stantial Indian computer-programming
 to be negotiating the acquisition of a        followed through on its commitments to      magnate . . . so stay tuned! rir

                                                                                                       • Russian Investment Review • 49

				
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