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18 июня 2018

The private bank’s rapid growth was supported by state-run VTB but their links went deeper
When Otkritie, then Russia’s largest privately held lender, was nationalised last year to stave off its collapse, state-run bank VTB wrote off its 10 per cent stake in the bank’s parent company.
Then a new central bank-appointed team sorting through the mess made a startling discovery: the upstart Otkritie had itself secretly amassed a 20 per cent stake — more than half the free float — in VTB. This made it the largest shareholder after the Kremlin.
The disclosure last January shocked Russia’s financial sector — already reeling after the central bank nationalised three top-10 lenders in four months at a cost of $24bn — and sparked feverish speculation over the motive behind the purchases, which VTB insists it knew nothing about.
A non-entity just a few years ago, Otkritie grew rapidly thanks to cheap central bank funding and acquisitions funded in part by VTB. Yet the central bank later delivered a damning verdict on the bank, saying its capital was “largely fictitious” and its management style marked by “adventurism”.
The VTB purchase played a key role in Otkritie’s downfall, according to Mikhail Zadornov, the bank’s new, central bank-appointed chief executive. Mr Zadornov told the FT in an interview that Otkritie spent so much on the VTB shares in late 2014 that its “colossal” losses on the trade numbered in the “tens of billions of roubles”.
But Otkritie’s loss was VTB’s gain. Bankers say that Otkritie’s massive purchases helped boost VTB’s stock — long one of Russia’s underperformers amid concerns about the bank’s profitability and corporate governance — by helping to wipe out the short interest on the Moscow exchange and nearly double the price.
VTB says that it only learned of the stake, which is now down to 15 per cent, last autumn, and denies any role in Otkritie’s purchase. The stake was spread out among Otkritie’s various subsidiaries to keep the individual holdings below the disclosure threshold of 5 per cent. “Nobody ever enlightened us about these plans officially or unofficially and we don’t know anything about them,” the bank said.
Otkritie’s former owners, led by founder Vadim Belyaev, continue to operate through a company called Otkritie Holding, despite losing control of the bank. They did not respond to requests for comment.
The undeclared purchase was so secret that Mr Zadornov, who ran VTB’s retail arm for 13 years, says he had no idea about it until central bank governor Elvira Nabiullina tapped him to head up Otkritie last fall. The stake is so large that it entitled Mr Zadornov to appoint himself and a deputy to VTB’s board in April.
Mr Zadornov said that based on his conversations with the central bank and Mr Belyaev, it appeared that the former owners had envisaged a sale of the outstanding VTB shares to an unspecified “strategic investor” at some point.
The central bank said the purchases were within the law but calculated that, well before the bailout, Otkritie had “neither the intention nor the financial ability to fulfil its obligations” on the so-called repo trades — deals to purchase securities with an agreement to sell them back at a higher price later — it used to fund the purchases.
VTB said: “As a minority shareholder in Otkritie Holding, we had no information about the company’s operational activity and, moreover, knew nothing about one of its subsidiary’s transactions.”
Before Otkritie’s spectacular demise and nationalisation in August 2017, Mr Belyaev, a soft-spoken, scruffily dressed former trader active on Moscow’s high-end hipster circuit, was considered Russia’s newest banking star — the local GQ magazine named him “businessman of the year” — for engineering Otkritie’s rapid growth.
He began buying the VTB shares around 2012 and ramped up Otkritie’s stake in late 2014, according to people familiar with the matter.
The move put pressure on hedge funds who had bet that the stock’s price would go down after the US and EU passed sanctions limiting VTB’s ability to raise capital.
Investors in London had bet a record $385m on the stock performing poorly, with similar spikes on the Moscow exchange.
Otkritie’s subsidiaries, many of them based offshore, bought up the VTB shares that were lent to the short sellers who expected their price to go down. They then withdrew the supply, forcing the short-sellers to close out their positions at inflated prices.
After engineering the “short squeeze” to increase VTB’s share price, Otkritie then bought even more VTB shares at the new price, the people said. The move, in effect, left Otkritie stuck holding the stake at double its previous market price.
“Once you’ve bought such a big stake, you can’t sell it back to the market without a big discount, and nobody could allow themselves that,” a senior Russian state banker said.
The VTB manoeuvre was one of several hedge-fund style trades Otkritie was engaged in at the time. That December, Otkritie helped oil company Rosneft repay its external debt on raising dollar refinancing by using Rosneft bonds as collateral to obtain repo loans from the central bank at 2.5 per cent interest.
Otkritie then used the same repo function to buy up 74 per cent of Russia’s 2030 Eurobond issue, which paid a coupon of about 7.5 per cent. The 5 per cent margin between the trades allowed Otkritie to make billions on the difference, doubling its assets on paper.
The central bank told the FT that it had no legal grounds to contest the bond purchase, which it described as “extremely careless and unprofessional”. It said the huge stake allowed Otkritie to “manipulate” the bonds’ price.
Eventually, Otkritie took huge losses on the bonds because it did not have enough currency reserves to keep the huge position spread among its various subsidiaries, Mr Zadornov said.
“As soon as the central bank closed the currency repo operations, Otkritie’s source of funding essentially disappeared,” he said.
Otkritie’s audacious trading also sparked tensions within its own management. Ruben Aganbegyan, Otkritie Holding’s burly, chain-smoking chief executive, largely recused himself from running it after disagreements with Mr Belyaev over its high-risk trading, three people close to him said. Mr Aganbegyan declined to comment.
Nearly a year before the nationalisation, people close to Mr Belyaev were warning that Otkritie could be heavily underwater. By that point, Mr Belyaev told friends he had become VTB’s largest private shareholder, according to another person close to him. VTB says it was unaware of this.
Mr Zadornov says he wants to take Otkritie public within three years after merging it with B&N, another failed top-10 lender. But the challenge of turning Otkritie into a profitable business is lost on no one. Several senior Russian bankers doubt whether what a rival chief executive calls a “Frankenstein’s monster” could ever return to the market. “Nobody will buy it,” another top Russian banker said.

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