Andrei Borodin: It is a hostile takeover of the bank

Delovie Vedomosti

A.T.: Mr Borodin, why were Eesti Krediidipank (EKP) blocks of shares sold to Firmex and Genovia? Who made the decision and why?
A.B.: The Bank of Moscow sold EKP shares and got what was good money at that time for them. The price was 1.15 of the book value. In 2011 that was a very good coefficient for a bank. Most banks traded at a discount from their book value back then. Some banks, including major Russian banks, were in such a situation even later. And Kostin (BM board chairman – Editor) was aware of the transaction. In a conversation with me before that, he clearly said that they did not need that bank (EKP) and that it was to be sold. That was the commercial sense, a normal and healthy one.

A.T.: Why would Andrus Kluge use his own firm and involve his wife? Did he anticipate that the Financial Inspectorate would dislike it?
A.B.: Firmex and Genovia are companies belonging to the EKP management. In essence, the managers decided to become minority shareholders of the bank, showed faith in it. That is a normal phenomenon, found all over the world and welcomed everywhere by the rest of the shareholders. Kluge bought shares of the bank where he was chairman; he bought them honestly and for an honest price, considering the bank to be a good and attractive object for investment. Kuzovlev (BM president – Editor) and Kostin did not and do not think so, judging by recent statements in the Russian press by Kuzovlev himself, and Kluge does. The Financial Inspectorate saw no irregularities at that point, and they knew all transaction details. Problems arose, as far as I know, only two years later against the backdrop of a conflict between Kluge and certain officials of the Financial Inspectorate.

A.T.: It follows from the minutes of the Board session of 15 September 2011, that the Bank of Moscow intended to make a deal with the new owners of the EKP shares on buying back the shares. Why did the EKP managers give the shares back?
A.B.: As to the back sale of the shares to the Bank of Moscow, according to my information, it was done at the insistence of the Bank of Moscow, that is VTB, which challenged the original sale. And the buyers decided that, instead of battling VTB, it was better to sell back. But that was already happening without my presence in the Bank of Moscow.

A.T.: A Bank of Moscow press release says that the contracts were signed much later than 24 March 2011, that is, when you had no authority to enter into transactions on behalf of the bank. The situation implies that the matter could be resolved in court. Either the transaction is void, as one signed by someone who did not have the authority to do so or based on Article 84 of the Law on joint-stock companies of the Russian Federation. Why was the out-of-court settlement chosen?
A.B.: I am not going to comment on morbid fantasies of the new owners of the Bank of Moscow. But your own question contains an answer: if the purchase of the shares had been illegal, they would not have bought the shares back. They would have simply taken them back. I have no doubt that in Russia it would have happened that way irrespective of the real state of affairs. In Russia, it does not matter whether fantasies or facts underlie a matter; what matters is whose fantasies those are. But here, an EU country is involved and such tricks do not work. The courts are not tame. So they had to buy back.

A.T.: The same press release says that the EKP shares purchase-and-sale contracts dated 24 March 2011 were signed by you later. I can imagine a late signing with the use of an old stamp, but how would the documents be formalised at the settlements depositary? I have asked these questions of the Bank of Moscow: how was it possible technically? Did Borodin remain an authorised person for securities transactions at the depositary after his removal?
A.B.: That is a good question to be asked of the owners of the Bank of Moscow. If they give you an answer, please let me know. But I do not think they will. The contracts were signed in full compliance with all corporate procedures. I signed them as president of the Bank of Moscow, having full authority to do so. I have nothing to add to that.

A.T.: Why is the BM trying to remove Kluge? Kluge is saying that the whole affair is because of the client base, which the BM management is trying to get to.
A.B.: The new management of the Bank of Moscow has been trying to get access to the information about EKP clients since 2011. To do that, employees of the Bank of Moscow have committed a number of crimes, both in Russia and Estonia. I think you are aware of the high-profile criminal case as a result of which Estonian Security police (KAPO) officer Indrek Põder was sent to prison. One of the arguments in the court decision was the fact of Põder receiving a bribe in 2011 from BM vice-president Tatiana Udaltsova in exchange for help in discrediting the EKP management. From non-public things, I can mention two EKP minority shareholders, Russian citizens, have been forced to sell their shares to BM. From recent developments, I can mention surprising synchronicity in the actions of the BM and the Estonian Financial Inspectorate in the matter of Andrus Kluge removal. First they address EKP shareholders a few days apart with similar wording concerning Mr Kluge being not fit and proper board head, following which BM representatives try to hold an unlawful EKP shareholders meeting with minority shareholders deprived of the right to vote. Just look at the sequence. It is a hostile takeover of EKP by a Russian organisation pure and simple. And, regrettably, certain Estonian government agencies and officials are contributing to it in every way.

A.T.: Do you want to say that this is why the new BM management has thought better of selling the asset (EKP) and is again actively increasing its participation in the capital?
A.B.: As for the reasons for such actions of the Bank of Moscow, they are transparent. Neither the bank nor the law-enforcement agencies have real grounds for continuing my colleagues’ and my own criminal persecution. They have exhausted all their possibilities in Russia. The only way out is to try and find something in other countries. It is no secret that the BM became an EKP shareholder during my presidency. Obviously, some of the group’s transactions have been conducted via EKP. Comrades from the VTB group (part of which is the BM) often use their foreign subsidiaries for money laundering and kickbacks, and they believe that others around them also do so. Therefore they are sure that they will find something in EKP. As there are no real grounds for going to Estonian law-enforcement agencies, they are acting in the only available fashion: they are trying to get control over the bank to gain access to information amounting to a bank secret. They may invent something when they find nothing. Going back to Kluge, I believe that a normal reaction of any professional manager and shareholder in a situation faced by Kluge is protection of lawful rights of minority shareholders and clients.

A.T.: Kluge believes that the Financial Inspectorate covers up BM actions. What is its interest?
A.B.: That the Financial Inspectorate is covering up Bank of Moscow tricks is a fact. It is seen in the approval issued to the Bank of Moscow to increase its share in EKP a year and a half after that happened and in spite of the stance stated by the Financial Inspectorate on the illegality of such transactions and even without imposing any sanctions on the BM. It is also seen in the pressure on EKP shareholders to remove Kluge based on facts that were brought to the attention of the Financial Inspectorate at the time of his confirmation in his present capacity of board head and have not been viewed negatively until recently. And, obviously, it is seen in that all the crimes committed on behalf of the BM are being ignored, crimes that make the bank an unacceptable player on the financial market for any supervising entity that sticks to law.
However, I am practically convinced that the Estonian Financial Inspectorate has no interest in encouraging a hostile takeover of an Estonian bank by the Russian VTB group. And I hope very much that the actions of the Financial Inspectorate are nothing but a mistake of individual officials that will be corrected in the nearest future, because otherwise what is happening looks very much like the story that ended in Põder’s arrest.

A.T.: According to BM reporting, the EKP block of shares as of 31 December 2011 was equal to 43.8 per cent (book value of 150 million roubles), and as of 30 June 2012, 49.8 per cent of share capital with a book value of 463.8 million roubles. How can you explain the increase by a factor of more than three?
A.B.: I can only do guesswork. In November 2011 the BM bought back a block of some 30 per cent, sold in early 2011, for 8 million euros (for the same amount for which it had sold it), that is, at least 320 million roubles. It is hard to say what reasons could make the Bank of Moscow evaluate its block three times cheaper. It could be that they tried to understate the value to open yet another criminal case against me. Later, apparently, they simply re-evaluated the block at market price.

It does not befit an arbiter to get into fight
Delovie Vedomosti

The main story of today’s issue is devoted to the conflict happening at Krediidipank (EKP), which inconceivably involves the Estonian Financial Inspectorate.

Last Thursday Krediidipank shareholders gathered for an extraordinary meeting, at which Bank of Moscow representatives yet again put to the vote the question of removing the bank’s board chairman Kluge from his post. To make such a decision in an extraordinary manner, according to the bank’s rules, 2/3, or more than 66 per cent of the votes of the shareholders present at the meeting, are needed. The Bank of Moscow has a little less than 60 per cent, and the rest of the shareholders do not support the decision. That circumstance has once already prevented a Bank of Moscow representative from replacing Kluge. This was the BM’s second (or already third) attempt.

The voting turned into a real mess: each party in the conflict counted the votes in its own way. In the opinion of the BM, a portion of the votes, that belonging to minority shareholders, was not to be taken into account. In such a way, the BM would have enough votes to pull through the desired decision. The rest of the shareholders and the bank’s management counted the votes based on the usual procedure. In their opinion, the minority shareholders had every ground to vote. It will become clear later whether the handwritten protocol by a BM representative will be deemed as corresponding to procedure and law as well as which one of the protocols will be enforced.

Whichever protocol is enforced in the end, it is quite possible that the other party will go to court, because a final decision on the legality of this or that method of vote counting may only be made by court. We sincerely hope that all this pandemonium with the votes and claims will not affect the bank’s current operation. The Financial Inspectorate is saying the clients have no reason to worry. Only the very stance of the FI raises questions.

It is known that Kluge, whose relations with the BM have long been tense, has turned to an administrative court with a complaint against the FI. The FI, in his opinion, fails to carry out its oversight functions. In particular, Kluge has listed a number of cases when the FI had to stop illegal or semi-legal actions of the BM but ignored them. Moreover, FI officers have refused to discuss the situation with the EKP manager.

We do not know whether or not Kluge has grounds for such statements. That will become clear only in court, but more than a year after the court accepted his complaint, not a single court session has taken place. Not a single one.

It is worthwhile to recall that administrative process gives the agency whose actions are disputed in court the right to present the court with proofs refuting the charges and claims brought against it. In other words, use the principle of competitiveness: if Kluge’s complaint is groundless, attorneys with documents are invited to come forward. Where there is a will, in more than a year that could be done, and the problem would have been closed.

There may be two reasons for which the Financial Inspectorate has not done so yet: either Kluge’s arguments are groundless and he himself is dragging out the process but FI officers are so unprofessional that they cannot use their arguments and put an end to the litigation in a legal procedure or the FI indeed has nothing to show the court and is procrastinating. Both alternatives are bad.

In the idea of the public, the role of the FI after all consists in putting out such fires, not fanning them. Today, citing legislation, the FI is stressing by all means that reconciliation of shareholders is not one of its tasks. We will allow ourselves to disagree with such a narrow interpretation.

FI functions include, among other things, ensuring the interests of clients of financial institutions, and if a corporate war needs to be stopped for that to happen, that needs to be done (naturally, taking property rights into account). In this case, the Financial Inspectorate did not only fail to maintain neutrality and to reestablish peace in the interests of bank clients, but also found itself in the field wearing the colours of one of the teams, risking its reputation.

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