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Vneshtorgbank Offers the EBRD a Subsidiary Instead
// Lateral movement
Vneshtorgbank has turned in to the Finance Ministry the agenda for the next meeting of its supervisory board. One of the key issues to be discussed will be “a conception for the establishment of a specialized retail bank based on Guta Bank.” The state bank has far-reaching plans. It is proposing to sell stock in Guta to foreigners, instead of its own. Among the buyers lined up is the European Bank for Reconstruction and Development, which has long wanted entree into the capital of the second largest bank in Russia.
Andrey Kostin, president of Vneshtorgbank, stated publicly a week ago that the supervisory council would consider the establishment of a retail bank. But the actual agenda for the meeting, scheduled for March 25, was received by the Finance Ministry only on Monday. The ministry confirmed that information for Kommersant.
There is no particular sensation in this event. The head bank stated the possibility of such a development of events when it bought 85.8 percent of Guta Bank last summer. Moreover, a few months later, Guta Bank head and former Vneshtorgbank vice president Mikhail Kuzovlev hinted that the bank could undergo a name change. So it is logical to expect Guta to become a Vneshtorgbank retail bank. That would be the salvation of Guta Bank, whose troubles are commonly known. Kommersant has information that the bank has suffered a significant loss of clients and employees in the last six months. The top management of Guta Bank has changed almost completely and half of the middle management as well. The bank's retail services have been hit particularly hard by these changes.
Much more curious is the plans Vneshtorgbank has for its future retail outlet. In material for the board meeting obtained by Kommersant, mention is made of the possibility of attracting “new shareholders, including foreigners.” This will, Vneshtorgbank says, solve “the task of privatizing part of the business without the loss of a number of the strategic functions of Vneshtorgbank.” Although no potential investors are named in the document, a Kommersant source at the Central Bank was sure that the EBRD was the main candidate in mind.
The source also said that, just over a week ago, Vneshtorgbank held a general rehearsal by presenting its project at the Finance Ministry. Besides Finance Minister Alexey Kudrin, who is the chairman of the Vneshtorgbank supervisory board, chairman of the Central Bank Sergey Ignatyev and two of his first deputies, Andrey Kozlov and Alexey Ulyukaev were present for it. Vneshtorgbank was represented by Kostin and senior vice president for finance and economic Erkin Norov. Kommersant has information that Kostin mention the EBRD as a potential shareholder at that time.
The source continued that no objections were expressed to the plans. That means that the project has a good chance of success. If the supervisory board approves it, Vneshtorgbank will finally satisfy EBRD demands to enter into its capital. The EBRD has been negotiating to purchase Vneshtorgbank stock for more than three years now and even made its own estimates of the volume of business done by the bank.
When Mikhail Kasyanov was prime minister, the idea of the EBRD entering into the capital of Vneshtorgbank was advanced in the administration, but it was abandoned when Kasyanov left that office. Kostin and other top managers of the bank were against the idea because the EBRD wanted to be involved in running Vneshtorgbank as well. The Europeans were interested in literally everything, from the bank's credit portfolio to having a representative on the supervisory council. Negotiations with the EBRD were frozen last year on the pretext of reevaluating Vneshtorgbank's business. A subsequent flurry of acquisitions by Vneshtorgbank pushed the EBRD negotiations ever farther out of view. Soon after its acquisition of Guta bank, Vneshtorgbank announced its acquisition of the Industry and Construction Bank of St. Petersburg, several banks in the CIS and stock packages in Russian banks abroad belonging to the Central Bank.
Now there is an opportunity to ease the bank out of the corner it finds itself in with the EBRD. Kostin had made informal inquiries with Jean Lamierre, president of the EBRD, at Davos about the attractiveness for the EBRD of investing in a subsidiary Vneshtorgbank retail subsidiary. Kommersant was unable to find out how Lamierre responded. Both Vneshtorgbank and the Moscow office of the EBRD refused to comment officially. However, a high-placed source at Vneshtorgbank said that “interest exists among Western banks in the retail project.” Beside the EBRD, the International Finance Corp., part of the World Bank; the Italian Mediobank and German Deutsche Bank are also interested in investing in Vneshtorgbank.
Kommersant will continue to track the development of these events.
Elena Kiseleva
All the Article in Russian as of Mar. 15, 2005
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