July 15, 2024

Regulators Provide $14 Billion Bailout for Bank of Moscow

MOSCOW — Russian regulators said on Friday that they had averted the collapse of one of the largest Russian banks by providing a bailout package of 395 billion rubles to Bank of Moscow, suggesting the bank’s problems with bad loans were more severe than previously acknowledged.

The bailout, worth $14.15 billion, raised the specter of balance sheet problems at other Russian banks, which had a tendency during the recession to roll over loans to struggling companies, rather than force them into bankruptcy courts.

Officials, though, have tried to characterize Bank of Moscow’s portfolio of bad loans for real estate projects in the capital as a unique problem created by the former mayor of Moscow as he tried to keep politically connected developers afloat during the downturn.

The bailout, announced in a statement on the Russian central bank’s Web site, will provide Bank of Moscow a 10-year loan of 295 billion rubles from a government deposit insurance program at an interest rate of 0.51 percent. The plan calls for a state bank, VTB, which recently bought equity in Bank of Moscow, to contribute an additional 100 billion rubles.

“The following measures aim to achieve stability of Bank of Moscow operations,” the statement said.

Problems at Bank of Moscow are closely entangled with a power struggle in city government after President Dmitri A. Medvedev fired the long-serving mayor, Yuri M. Luzhkov, last autumn. The city government had owned 46.5 percent of the bank’s stock, while the bank was also a significant lender to a development company, Inteko, that was owned by Mr. Luzhkov’s wife, Yelena Baturina.

After Mr. Luzhkov’s removal, the authorities have been untangling those and other business relationships in the city’s highly lucrative real estate market. Until last year, Moscow had more retail real estate under development than any other city in Europe, trailed distantly by Paris.

The bank’s former chief executive, Andrey Borodin, is wanted by the Russian authorities for approving a $460 million loan that the police say ended up in the personal accounts of Ms. Baturina.

Ms. Baturina and Mr. Borodin are both living outside of Russia now, though Ms. Baturina has said her months-long absence is not out of concern about possible criminal prosecution.

VTB, which is majority-owned by the national government, bought the city government’s stake in Bank of Moscow for $3.5 billion in February. It is not clear why the state bank was not aware of the balance sheet problems at Bank of Moscow before the purchase.

Article source: http://www.nytimes.com/2011/07/02/business/global/02ruble.html?partner=rss&emc=rss

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