By Catherine Belton and Neil Buckley, Financial Times
On a snowy Friday evening in late March, Andrei Borodin received a call as he flew out of Moscow on a private jet. Then president of Bank of Moscow, Russia’s fifth-biggest, he found himself under mounting pressure as VTB, the state-controlled lender that is Russia’s second biggest, tried to take over his bank. Just hours earlier, the government’s budget watchdog had called for his suspension while it audited what it be-lieved were “dubious” loans to entities re-lated to Bank of Moscow. Police were also investigating him separately over a property loan the bank had made.
“Someone called me and said that on Monday the Russian police will officially accuse me of abusing my authority,” says Mr Borodin. He never flew back; today he is in exile in an undisclosed location. Within months, Bank of Moscow – a quasi-sovereign lender with shareholders including Goldman Sachs and Credit Suisse – was at the centre of one of the nation’s largest corporate scandals of recent years. To fill an alleged hole in its accounts far bigger than previously suspected, the government agreed in July to extend its largest-ever bank bail-out. At Rbs395bn, then worth $14bn, it was equivalent to 1 per cent of economic output.
For a while the affair seemed to threaten the stability of VTB, a national banking champion whose assets had mushroomed from $4bn to $120bn in just seven years. The affair has become steeped in controversy because of troubling questions it about bank oversight in Russia – but also because of the central actors’ sharply conflicting accounts. Andrei Kostin, VTB chief executive, says that after his institution bought an initial 46.5 per cent of Bank of Moscow in February, it found questionable loans worth billions of dollars to businesses related to Bank of Moscow’s senior managers. The bail-out, he says, averted what could have been Russia’s version of the collapse of Lehman Brothers.
Mr Borodin’s camp claims the affair is yet another example of the grabbing of assets by Kremlin-connected businesses seen so often in recent years. They say the hole in Bank of Moscow’s accounts was “artificially created” as a pretext for the bail-out – to benefit VTB, or even cover problems with VTB’s own balance sheet.
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