History of Bank of Moscow

In March 1995 the Moscow City Government established a joint-stock company, Moscow Municipal Bank – Bank of Moscow, which went on to become simply Bank of Moscow. The City of Moscow at first held a 51% stake in the company, with the remaining shares divided between a number of small shareholders, none of whom owned more than five percent.

Andrey Borodin was appointed the President of the company, which initially employed a team of six people and operated from basement offices.

When the Russian banking crisis hit in 1998, Bank of Moscow was in a relatively strong position, due to its conservative credit policy and the support of the City.

Following the crisis, the Bank underwent a period of remarkable expansion and success. It rapidly grew from a small local Moscow bank, controlled by the City of Moscow Government and largely catering to the City’s payroll and treasury needs, to becoming a major independent financial institution offering its numerous corporate and private clients the full range of banking services.

Between 1999 and 2004 Andrey Borodin and a co-investor, Lev Alaluev, used funds gained from separate personal investments to acquire a 20.3% stake in the Bank for approximately US$150m. This acquisition was approved by the Central Bank of Russia. The Central Bank also gave its written approval, on 29 January 2009, for this stake to be subsequently increased to 25%.

Between 1996 and 2003, Bank of Moscow rose from 47th to 8th place in the list of top-equity Russian banks. Euromoney magazine named it Best Bank in Russia in 2000, and it has received numerous awards from recognised publications and financial agencies. Under Borodin’s leadership, Bank of Moscow was, from 2007, one of only a handful of banks in the country with an investment grade rating. The Bank’s brand value alone has been estimated at more than USD 800 million.

Since 2004, Bank of Moscow has published its financial statements in accordance with international accounting standards, and international credit rating agencies have assigned ratings to the Bank. Moody’s has assigned a long-term international credit rating of Ba2.

Relationship with the City of Moscow

As the Bank grew, its relationship with the City of Moscow Government transformed completely.

With its international presence and client-base expanding, the Bank’s dependence on business from the City decreased. Ultimately, the City Government went from being the Bank’s main customer to simply one of a number of major clients.

The City’s direct commercial involvement in the Bank also decreased. In 2008, as a result of Bank of Moscow’s capital increase, the Moscow City Government’s stake was reduced from 51% to 46.6%, while the number of the City’s representatives on the Board of Directors was reduced from nine to seven, out of 13 in total. Alongside this, the Bank’s management were given substantial additional powers, to reflect their increased responsibilities and independence.

In short, while the Bank maintained a good working relationship with its significant shareholder, it had become essentially independent of the City of Moscow Government.

Relationships with international banks

During its period of rapid growth, Bank of Moscow developed relationships with a number of international banks, including JPMorganChase, Deutsche Bank, Commerzbank, Goldman Sachs, Credit Suisse and Barclays Capital.

In August 2006, J. P. Morgan International Finance Limited, part of JPMorganChase, became a minority shareholder in the Bank of Moscow, and in 2010, Goldman Sachs and Credit Suisse Group AG acquired 3.88 percent and 2.77 percent stakes respectively in the Bank.

Takeover of Bank of Moscow

The Bank of Moscow had found international success and respect through a disciplined, independent and commercial business strategy. However, in 2010 the Bank’s management found themselves reluctantly dragged into controversy.

A high-level political reshuffle resulted in the dismissal of the long-standing Mayor of Moscow and his replacement by a new nominee. This change in the political landscape created an opportunity for outsiders to change how the Bank was controlled, and effectively curtail its independent commercial operations.

First, the City of Moscow Government, under its new Mayor, appeared to no longer be satisfied with the City’s substantial, but non-majority, shareholding. Then VTB, a second-tier Russian state bank, also declared its interest in gaining control of the Bank.

To many in Russia and the outside world, these moves were surprising. The interest from these institutions did not seem commercially motivated, and did not make obvious business sense. There was, for example, little business synergy between VTB and Bank of Moscow from an objective commercial standpoint. Borodin’s clear strategy and vision for the increasingly independent and successful Bank did not require any outside interference.

For these reasons, Andrey Borodin vocally opposed either institution gaining a majority shareholding, and the Bank losing its independence.

VTB ultimately emerged as the best positioned to gain a controlling stake in the Bank, and so it began the process of acquiring the City of Moscow’s Bank 46.6% shareholding. After initially announcing its intention to acquire 100% of Bank of Moscow shares, VTB then decided that, to avoid this expense, it would instead attempt to ensure that those who owned the remaining Bank shares were under VTB’s control, or agreed to vote their shares with VTB. This would allow VTB to exert control of the Bank without paying for a majority shareholding or buying out the minority shareholders on the same terms.

The state bank’s plans would, however, be thwarted, as long as Borodin, in his role as President and a substantial shareholder, could resist VTB’s control.

What happened next was a considerable surprise to Bank of Moscow management. In December 2010, an investigation began into a loan to a customer of the Bank’s, a development company called Premier Estate Company.

While every loan, by its very nature, involves an element of risk, the arrangement in question had been approved by the loan committee of the Bank, after all the necessary procedures had been followed. The Bank’s risk management team had also stated its positive opinion.

Around the same time, the Audit Chamber of the Russian Federation announced that it was launching an audit of Bank of Moscow at the request of the new Moscow Mayor. This unexpected move was seen by many as highly unusual, as such an exercise was completely outside the scope of the Chamber’s remit.

On 27 February 2011, the Government of Moscow finally sold its 46.6% stake in Bank of Moscow to VTB for RUB103 billion. This realised a considerable profit from the RUB30 billion the City had invested over the intervening 16 years. This was one of only a few times in the history of Russian business that the State profited from its investment in a commercial venture.

The sale raised, however, a number of questions:

  1. The sale was done without conducting an obligatory tender. This appears to raise issues under the Law on Privatisation in Russian Federation, as no other organisation was able to buy the shares.
  2. Because VTB is 75% owned by the Russian state, it should arguably not have acted as a purchaser in a privatisation transaction.
  3. Unusually, VTB did not conduct a mandatory tender offer to buy out the minority shareholders in the Bank – something which is arguably required by the Law on Joint Stock Companies.
  4. Had VTB conducted such a tender offer and bought 100% of shares in Bank of Moscow, under the Law on Banks and Banking Activities in Russian Federation VTB would likely have been declared bankrupt, as its capital adequacy ratio would have fallen to 8% compared with the minimum required level of 10%.

Following VTB’s questionable takeover, the internationally experienced management of Bank of Moscow, including its President Andrey Borodin, was replaced by people apparently close to both the management of the state-owned VTB and the Moscow political regime. VTB’s Chairman Andrey Kostin and first deputy Mikhail Kuzovlev became the Bank’s Chairman of the Board of Directors and President, respectively.


1995: The Moscow City Government establishes the Moscow Municipal Bank – Bank of Moscow.


  • Bank of Moscow’s commercial expansion progresses rapidly. Its relationship with the City of Moscow changes to reflect its increasingly independent shareholding and management arrangements.
  • The Bank’s management is given substantial additional powers.

2006: A change in banking law requires all shareholders in financial institutions to disclose information on their stakes in such institutions.

August 2006: J. P. Morgan International Finance Limited, part of JPMorganChase, becomes a minority shareholder of the Bank of Moscow.


  • The stake held in Bank of Moscow by the Moscow City Government is reduced to 46.6%.
  • The number of the City’s representatives on the Bank’s Board is reduced from nine to seven members (out of a total of 13).

Early 2010: Goldman Sachs and Credit Suisse Group AG acquires 3.88 percent and 2.77 percent stakes respectively in the Bank of Moscow.

September 2010: A high-level political reshuffle results in the replacement of the long-standing Mayor of Moscow.

December 2010: An investigation begins into a loan to a customer of the Bank’s, a development company called Premier Estate Company, and the Audit Chamber of Russian Federation announces that it is launching an audit of Bank of Moscow at the request of the new Moscow Mayor.

27 February 2011: The Government of Moscow sells its 46.6% stake in Bank of Moscow to VTB, raising a number of questions.

Key Facts

Bank of Moscow is Russia’s 5th largest bank by assets and capital. It was founded in 1995 and employs over 9,000 people.

The bank has 381 branches in Russia, covering practically all major economic centres.

It provides services to over 100,000 corporate clients and over nine million private customers.

Bank of Moscow has five foreign subsidiaries:

  • BM Bank (Ukraine)
  • Bank Moscow-Minsk (Belarus)
  • AS Latvijas Biznesa Banka (Latvia)
  • AS Eesti Krediidipank (Estonia)
  • Bank of Moscow — Belgrade (Serbia)

The Bank also has a representative office in Frankfurt am Main, Germany.

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