Tag Archives: VTB

Why Russian Oligarchs Will Be First to Leave Their Offshore Paradise (Op-ed)

The Paradise Papers could help Putin’s efforts to return capital onshore

The release of the Paradise Papers has highlighted a well-known and unpleasant fact: The rich and powerful have a tendency to hide their wealth offshore, away from the public eye.

Tax havens unite people of different molds into a single caste — from dictators to democrats, and prime ministers to queens. They also don’t discriminate between Americans or Angolans — status is more important than nationality. And they stretch across political divides, from liberal democrats to conservatives.

Continue reading Why Russian Oligarchs Will Be First to Leave Their Offshore Paradise (Op-ed)

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Russia spends almost $700 mln to boost Gazprombank capital

Dec 31 (Reuters) – The Russian government has bought almost $700 million worth of state bank Gazprombank’s shares, the bank said on Wednesday, in the latest support for a banking sector suffering from Western sanctions over the Ukraine crisis and a sharp economic slowdown.

Gazprombank said the government had bought 39.95 billion roubles ($685.5 million) of the bank’s preference shares on Tuesday, using money the bank had returned to the country’s National Wealth Fund (NWF) by repaying subordinated deposits it received earlier.

“The conversion allows the bank to strengthen its capital structure and provides for sufficient scope to expand its operations,” the bank said, adding that preference shares are non-voting and therefore the share purchase would not affect the voting rights of current shareholders.

Russia’s government is stepping up efforts to support large banks and state companies as the economy slides towards recession and a currency crisis gathers momentum, threatening to shatter the economic stability on which President Vladimir Putin’s popularity partly rests.

Putin said early this month that domestic banks should be supported to boost lending to important projects in the real sector of the economy.

“We have a large amount of internal savings, they should become effective investments,” Putin said in his annual state of the union speech.

CAPITAL BOOST

Russian banks are reeling from the plunge in the rouble, which prompted a spike in deposit withdrawals as Russians rushed to convert their savings into hard currencies, and sanctions over Ukraine that sharply raised their funding costs.

Finance Minister Anton Siluanov said last week that Gazprombank was seeking 70 billion roubles from the NWF, one of two rainy-day funds that count as part of Russia’s international reserves.

Another state lender, VTB Bank received 100 billion roubles from the NWF earlier this week, and VTB expects to receive a further 150 billion roubles by the end of the first quarter of 2015 to increase its capital and fund investment projects approved by the government.

Last week Russian authorities also significantly scaled up rescue funds for mid-sized lender Trust Bank, saying they would provide up to $2.4 billion in loans to bail it out.

Both Gazprombank and VTB received separate state support earlier in the year.

The banking sector is set to receive an additional capital boost of up to 1 trillion roubles from early next year after Putin signed into law legislation allowing the government to give banks OFZ treasury bonds via a state corporation.

It is not clear which banks could benefit from that law, but VTB and Gazprombank are seen as contenders as they are considered “systemically important.”

The EU’s Sanctions Against Russia Create A Problem For Austria

A while ago, I reported on the proposed sale of the Balkan assets of the nationalized Austrian bank Hypo Alpe Adria. At the time there were three bidders for a network of banks and financial institutions in Slovenia, Croatia, Bosnia & Hercegovina, Serbia and Montenegro.

The three bidders were Advent International, an American investment firm, backed by the European Bank for Reconstruction and Development (EBRD); Bulgarian politician Dennis Barekov’s Via Group, backed by Russia’s second-largest bank VTB; and Millhouse Capital UK Ltd.

A fourth bidder, Tsvetan Vassilev, owner of Bulgaria’s fourth-largest bank KTB, dropped out early in the bidding, no doubt because the failure of KTB and freezing of its assets had left him without the money to proceed.

In September, Austrian media reported that Millhouse Capital UK Ltd. was no longer in the running. This came as something of a relief, since Millhouse Capital UK Ltd. is an exceedingly shady organization and its owner, Ralf Dodt, has a history of running investment scams. It left Advent/EBRD and Via Group/VTB as the only remaining bidders.

I was somewhat surprised that Via/VTB remained as a serious bidder once VTB was subject to both US and EU sanctions. VTB is already suffering financial consequences from the sanctions and according to my colleague Kenneth Rapoza is shrinking its operations in the UK and US.

But it seems that sanctions are not sufficient to derail this bid to buy Balkan financial institutions, even though some of them are in EU member states Croatia and Slovenia.

European Bank for Reconstruction and Developme...

EBRD Member States. Photo credit: Wikipedia

Three weeks ago I was contacted by an Austrian political adviser, who expressed concern about the quality of the bidding process for Hypo Alpe Adria’s Balkan assets – the so-called “SEE-Network”.

It seems that the Advent/EBRD bid is “preferred” by the authorities even though it is lower than the Via/VTB bid. My contact asked me these questions:

  • Would I agree that, as a result of the EU sanctions against Russia, this bidding process might not find ideal conditions in the interest of Austrian tax payers?
  • Would it be advisable to negotiate a postponed deadline for the sale of the SEE-Network with the EU in order to secure an optimized result?

It seems that Austrian politicians are more concerned about Austrian public finances than about the Ukrainian situation and the standoff with Russia. So much for EU solidarity.

But Austria is not the only EU member expressing concern about the effect of the Russian sanctions on the Hypo Alpe Adria bid. The Bulgarian news agency Novinite claims that the Austrian authorities’ reported preference for Advent/EBRD is the “final rip-off” of the Austrian state:

Over the past 2 weeks, various Austrian press, most notably, an investigative piece in the reputable weekly Format, report that the Eastern European consortium proposed to guarantee the repayment of the public funds along with a long-term vision for the development of the bank’s business in their “home” region, yet the same reports name Advent as the preferred bidder that may be about to close the deal.

Given that this price is reportedly below 10% of the net asset value of the group (undoubtedly the cheapest banking deal of the century), the press reports further note that everyone (especially the opposition politicians) expects that the private equity fund will do what private equity funds do “for living” – value extraction, i.e. that Advent will liquidate some of the weaker performing subsidiaries, re-brand the others and sell them piece by piece.

Well, Advent does specialize in buyouts, and turning round distressed companies can involve selling some of their assets. But this is a sale of the good bits of Hypo Alpe Adria – the Austrian state is keeping the bad assets itself. If Advent/EBRD ended up liquidating part of the network, they could justifiably complain that they were sold a dud. Novinite’s comments sound like scaremongering to me.

 

Similar scare stories circulated when the UK’s Co-Op Bank was partially bought out by two American hedge funds – but so far no significant asset-stripping has taken place and the bank is gradually returning to health, though as a smaller, leaner organization than it was before its high-profile failure.

It is perhaps not surprising that a Bulgarian news agency should oppose the Advent/EBRD bid. After all, the competing consortium is partly Bulgarian. But unlike my Austrian contact, Novinite completely ignores the political sensitivity of this bidding process. The presence of a sanctioned Russian bank in the Eastern European consortium is a serious complication.

The present tension between the EU and Russia creates a difficult dilemma for the Austrian authorities. On the one hand, they should get the best deal for Austrian taxpayers, which would imply that they should accept the higher bid even though it involves a sanctioned Russian bank.

On the other hand, allowing a sanctioned Russian bank to buy financial companies in the Balkans would seem contrary to the spirit if not the letter of EU sanctions.

The fact is that Austria is a core member of the EU and has close ties not only to Eastern Europe but to Germany, Italy and France. The “best interests” of Austrian taxpayers cannot be wholly financial, and nor can they be limited to the territory of Austria.

The EU’s eastern border is politically unstable: the bid from Via/VTB, if successful, would deepen Russia’s involvement with the fragile Balkan banking system and give it possibly unwelcome leverage over EU initiatives in the region.

Given Austria’s extensive financial and trading interests in Eastern Europe, I can’t see how the Via/VTB bid can be regarded as being in the best interests of Austrian taxpayers as long as the Russian standoff continues – which may be for a long time.

But delaying this sale, as my Austrian contact suggested, is in no-one’s interests. Hypo Alpe Adria is a constant drain on Austrian taxpayers and should have been wound up a long time ago.

The Austrian authorities need to make a decision. In the present political situation, the Via/VTB bid is untenable. The Advent/EBRD bid should succeed and the sale proceed as quickly as possible.

“Russia Could Ditch Dollar In 2-3 Years”; Deputy PM Warns Nuclear Subs “Could Reach Any Country On Any Continent”

“Two to three years is enough, not only to launch [settlements in rubles], but also to complete these mechanisms,” says Andrey Kostin, head of Russia’s second-biggest bank VTB, noting that the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system would become “a point of no return” making any further dialog impossible.

However, as Deputy Prime Minister Dmitri Rogozin explains in this interview, how Russia’s military and industrial complex is responding to a growing threat from America. Russia is not responding with any talk about the nuclear button (at least not yet); but they are preparing for such an eventuality:

“we are creating a nuclear submarine fleet… capable of reaching any country on any continent, if [USA] suddenly becomes the aggressor, and our top-most national interests come under threat,” adding that Obama’s coup has ushered in “the complete demise of the Ukrainian State.”

As RT reports, ?two to three years would be enough time for Russia to switch to international settlements to the ruble, Andrey Kostin, head of Russia’s second-biggest bank VTB, said…

The media has reported on the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system.

Kostin said the move would become “a point of no return” and that any further dialogue would be impossible if SWIFT was cut off.

“If you look at Iran’s experience, shutting down SWIFT only happens when all relations; political, economic, cultural, even diplomatic, break down,” the VTB boss said.

“I don’t know how [Western] banks could block SWIFT and then expect cooperation in the fight against terrorism and nuclear disarmament.”

However, replacing SWIFT within Russia won’t be difficult, Kostin said.

“We have a [similar] system at the Central Bank of Russia and others. The Central Bank has tested this system, and we can switch to it at any moment.”

But away from the specifics, Deputy Prime Minister Dmitri Rogozin explains Russia’s Military and Industrial plans in this extensive interview… (via Eric Zuesse)

Deputy Prime Minister Dmitri Rogozin, who has Russia’s military portfolio, was addressing his nation’s public, September 22nd, on Rossiya TV, and he explained how his country is responding to the threat of America’s intending to place its nuclear missiles on Russia’s border, inside Ukraine (much as the USSR had done in Cuba to America during the 1962 Cuban Missile Crisis).

Russia is not responding with any talk about the nuclear button; at least not yet. There is still time enough to avoid anything so urgent as that. But they are preparing for such an eventuality. (8:50)

“We are creating a nuclear submarine fleet … capable of reaching any country on any continent, if it suddenly becomes the aggressor and our topmost national interests come under threat.”

Obama has started clearly in that direction, with his February 2014 Ukrainian coup d’etat installing a U.S.-allied Ukrainian Government to replace the former (and democratically elected) Russian-allied one; and Russia takes Obama’s threat seriously; so, Russia is now rapidly updating its nuclear and other arsenals, and is offering technologically advanced military designers from all over the world extremely favorable terms for becoming Russian citizens.

Rogozin also says that (9:23), “by now, we have updated almost the entire fleet of strategic bombers.”

All of the military parts and products that were formerly being manufactured in Ukraine, have been switched to Russian factories instead. Now (10:48), “Everything is produced in Russia.” He says that many of Ukraine’s top military designers have already moved to Russia, and that most of the others are desperate to leave Ukraine.

He comments (12:31), “For Ukraine, it is the end. It is a complete demise of the Ukrainian state as an industrial country. Nobody wants their products in the West because they are outdated, and they [the West] have their own manufacturers. What they [Ukraine] are doing right now is suicide. …

I say this with great regret. I’ll tell you one thing: we still had hope at the end of last year [before Obama’s coup] that we would be able to remedy the situation [that it wouldn’t happen].”

He says: (14:21), “On 21st of February, when a coup was staged, I had to fly to Kiev on behalf of The President [Putin]. [But] I stopped the car at the entrance to the airport, because it was clear that Ukraine was finished” as a manufacturing economy.

He sees manufacturing as the basis for a sound economy. (14:48) “Today, the only choice for them [Ukrainians] is to go into retail trade. But I think they also have another choice: to move to Russia.” So: Putin is looking to build Russia’s economy on a manufacturing basis, perhaps like China has done.

Rogozin repeatedly invites weapons-designers from around the world to move to Russia. Perhaps Putin takes as his inspiration what happened to the U.S. economy after our country, under President FDR in the 1940s, responded to the fascist threat by means of massive support to military R&D and manufacturing. Perhaps Putin hopes that Russia will become the new America, maybe that Putin will become the new FDR.

The interviewer responds (15:52) “What a strange story is unfolding.” And Rogozin continues, “From now on, we will be gathering the best experts in the world.” So: that (which also happened under FDR, and continued under Truman) is, indeed, their intention.

As if intending to make his point absolutely clear, he continues: “The Americans used to ‘suck out’ the best brains from around the world, … now we are reversing this process.”

Discussing France’s having gone along with Obama to stop production of France’s Mistral aircraft-carrier ships to the Russian Navy, he says (20:45),

“The money [from us] is paid, which means that they have to return it with penalties. And … France is losing not just money, but their reputation as a reliable supplier.”

Then, starting at 22:32, he notes that when he first entered the Government (which was at around the time that Putin first became President), he noticed that “our individual businesses preferred to buy micro-electronics in the West,” and that they would need “to start the production, in Russia, of all that is necessary.”

 

He says “We have already given the necessary instructions” to do precisely that. Obama’s action in Ukraine seems to have spurred Russia to do this. Yet again, it is like America during WWII.

He continues immediately to add: “However, what we cannot, or do not have the time to make, we can get in other countries who are in trading partnership with us,” mainly the “BRIC” or rapidly industrializing countries, with whom Putin has been building a trading-bloc.

The discussion then goes on to whether building Russia’s manufacturing base upon the making of weapons is a sound idea, and Rogozin says (24:34) that among Putin’s advisors, “we try not to argue publicly, but on the inside it is all boiling.”

He says that Russia’s high interest-rates are a great problem for developing manufactures. He makes a stunning admission (24:53):

“They [America] are in a much more favorable position, no sanctions, no one prevents them from working; the banking policy [Federal Reserve] supports the industry. We do not have any of this. We are not going to now discuss the reasons why, but those are the facts. This is why the government now is making a decision to compensate for the [high] interest rate for enterprises in the military-industrial complex.” Russian sovereign debt will probably soar.

However, Putin has decided “to develop a program to transfer technology from the defense [sector] into civil” manufacturing, so as to reduce the extra economic burden on them. The real hardship, apparently, will go to Russia’s consumers.

But, then, after the military-manufacturing sector gets humming, “they should be ready to produce similar high-tech products for the civil industry,” including, “metallurgy, electronics, composite materials, and much much more.”

Sberbank target of latest EU sanctions

Sberbank, Russia’s largest lender, will be blocked from accessing Europe’s medium- and long-term money markets under new wide-ranging EU sanctions against The Kremlin.

The “level three” sanctions, which take effect on Friday, are the toughest response yet by the EU against Russia over its support for rebels groups fighting in a months-long conflict against government forces in the east of Ukraine. The US and EU accuse rebel groups of shooting down Malaysian Airliner MH17 on July 17 with weapons supplied by Russia.

The sanctions are also the first to target broad economic sectors of the Russian economy as opposed to earlier responses which targeted a small number of institutions and prominent Russians and Ukrainians with travel bans and asset freezes.

Analysts said Sberbank’s inclusion gave Brussels’ measures the potential to do more harm to the Russian economy than those of the US.

State-owned Sberbank was conspicuously absent from US sanctions against Russia announced earlier this week and co-ordinated with the EU.

Brussels also targeted VTB, Gazprombank, Vnesheconombank and Rosselkhozbank, preventing them from raising funds in the EU’s capital markets with a maturity longer than 90 days.

Sberbank is Russia’s largest lender and owns 50 per cent of assets in the country’s banking system. It has $1.6bn in debt due for refinancing until the end of this year and $3.5bn next year – less than VTB, Russia’s second-largest lender which is also partially barred from US capital markets.

“This is a very strong signal – you could say Sberbank is the Russian banking system,” said the Russian head of a US bank.

However, Russia’s central bank has vowed to support all banks hit by sanctions to limit the impact of the US and EU action.

As expected, the EU also imposed restrictions on arms sales to Russia and on specialist oil equipment needed for work in deep waters such as the Arctic. BP, the British energy company, has warned that sanctions against Russia could harm its business.

“It is . . . considered appropriate to apply additional restrictive measures with a view to increasing the costs of Russia’s actions to undermine Ukraine’s territorial integrity, sovereignty and independence and to promoting a peaceful settlement of the crisis,” the EU said in a statement.

The statement also said that the measures could be extended further if the violence in eastern Ukraine worsened.

Although the measures are the EU’s most emphatic to date, they included concessions to help various European states.

A controversial $1.2bn French contract to build and export two Mistral helicopter carriers to Russia will be unaffected by the new restrictions as the deal was concluded before August 1.

Early drafts had considered measures against both oil and gas equipment, but the gas sector was ultimately ruled too sensitive to be included in the sanctions.

In the banking sector, there will also be exemptions for European subsidiaries of the Russian banks that are important to the financial systems in countries such as Slovakia and Cyprus. Eastern European armies dependent on parts from Russia also won a special clause enabling them to maintain their “existing capabilities”.

The Russian government did not immediately respond to the announcement. But in a move seen as retaliatory, Russia’s veterinary and phytosanitary service threatened to ban imports of all plant products from the EU, following a similar move against Poland this week. Sergei Dankvert, Rosselkhoznadzor head, said the agency regularly found violations of quarantine procedures and would seek consultations with the EU.