The fate befalling the Bank of Moscow and its CEO Andrei Borodin, author of the adjacent article, is reminiscent of the plot in a bad Hollywood film. The details of what exactly transpired behind the scenes that led the 43-year-old Borodin, sought by the Russian authorities for mismanagement of the Bank of Moscow, to live in exile in London are unclear. “Finanz und Wirtschaft” attempts to trace the course of events. The Bank of Moscow founded in 1995 by the city of Moscow and its mayor Yuri Luzhkov, emerged as one of Russia’s top banks under the leadership of Borodin, a close confidante of Luzhkov. Even as the financial crisis unfolded, the bank maintained buoyant growth and enjoyed the confidence of many western investors. As a result, in July 2010 Goldman Sachs and Credit Suisse jointly acquired a 6.6% holding of the bank’s shares. Everything was going smoothly.
However, after Luzhkov fell out with Russian President Dimitri Medvedev last autumn, in September the Moscow mayor was stripped of his office. Since then, it has become apparent that even the Bank of Moscow, whose power had long been a thorn in the side of the Kremlin, was not untouchable. In December, a government-led investigation into the lending practices of the Bank of Moscow concluded that in 2009, the bank had loaned about $400 million to the Premier Estate company for a land purchase in a deal brokered by Luzhkov’s wife Yelena Baturina. Most of this money wound up in the personal accounts of Ms Baturina. Both Borodin and Baturina have steadfastly denied these allegations. Even so, the loan sealed Borodin’s fate. In spring, he was removed from office and had to flee Russia. In May an official warrant was issued for his arrest.
As early as February, the state-controlled bank VTB – Russia’s second largest financial institution after Sberbank – bowed to government pressure to take over a 46.5% stake in the Bank of Moscow for $3.7 billion. Borodin, who held a 19.91% interest in the bank, initially resisted the move, but in April sold his stake to businessman Vitali Yusufov, who by this time was sitting on the Bank of Moscow supervisory board. Alongside Yusufov, the pro-government businessman Suleiman Kerimov also acquired an interest in the Bank of Moscow, buying up the stake held by Goldman Sachs. At the beginning of May, voices were raised within VTB that called the quality of the Bank of Moscow credit portfolio into question. A few days later, the tally of the bad loans surpassed $12 billion. On 1 July, the government reached a decision in collaboration with the central bank: the Bank of Moscow would be extended a rescue package of $14 billion. To benefit from the government aid, VTB was required to increase its shareholding to 75%. Borodin is convinced that no bailout was needed.
Meanwhile the wildest rumours are making their rounds. According to one, VTB was to exploit the Bank of Moscow to offload its own long-standing burdens. Others see VTB as a white knight that has prevented a Lehman-style crisis in Russia. Where the truth lies cannot be conclusively determined. Nevertheless, it is again clear that corporate governance in Russia does not come even remotely close to western standards, in that lack of transparency poses enormous problems and international investors still face great difficulties in assessing the risk of an investment. That applies not only to the banking sector, but also to the entire Russian economy.