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A. Kostin: “We know now exactly what the balance sheet of the Bank of Moscow is”

 
22.07.2011

Aaron Heslehurt

Let’s move on because at the beginning of this month, Russia’s fifth largest bank, the Bank of Moscow, was given the biggest bail-out in Russian history, $14 billion of the rescue money. It came after another bank, VTB, gained control through a hostile bid, only to uncover bad loans valued at $9 billion, a third actually of the bank’s assets. It certainly does raise some big questions about bank regulation in Russia, but it might also make foreign investors wonder just what chance they have even if local firms can run into such problems. Let’s get more because Andrey Kostin is the Chairman and CEO of VTB, Russia’s second largest bank which, as I mentioned, just bought the Bank of Moscow. Andrey, welcome to the programme, we appreciate your time. Obviously one would imagine this came as a bit of a surprise to you, so I have to ask you off the bat, what lessons were learned here? Do you have any regrets buying the bank?

Andrey Kostin

No. First of all, I would like to say, that it was not a hostile take-over; because we were buying from a friendly partner, the Moscow Government, 46.5% of the stake; but the management, who was the minority shareholder, took a very hostile stance and that’s created the problem. So, no, we don’t regret it because it’s a sad story with a happy end; as it resulted, with the assistance of the Central Bank, the situation looks very well from the financial point of view. We very much expect that the brand of Bank of Moscow will develop; it will be a strong franchise and it will be a big contribution to the business of the VTB Group.

Aaron Heslehurt

You’re optimistic, but are you expecting any more bad news to come off the bottom line?

Andrey Kostin

No.

Aaron Heslehurt

Because some analysts are saying though that the figures that they’ve talked about, we don’t even know if that’s the bottom yet, if it’s hit bottom.

Andrey Kostin

We are now on a roadshow in London at the moment, just explaining to our investors that’s the end of the story from the point of bad news. We know now exactly what is the balance sheet of the bank and we cleaned up all the remaining outstanding issues, and we are telling them that the support we received from the Central Bank is absolutely adequate to cover all the bad loans which exist in the bank.

Aaron Heslehurt

We talk about regulation, that’s a big theme of course with the banking picture around the world but a story like this certainly raises some big questions marks for Russia’s banking regulation. In fact, outsiders will already question the lack of transparency. Are we going to see some changes do you think?

Andrey Kostin

Absolutely. The Russian President mentioned that there’s a problem for regulators all around the world. He gave instructions to the Central Bank of Russia and they’re preparing a new scope of regulatory amendments into legislation to provide more power for Russia’s Central Bank, particularly in dealing with the offshore companies, and we expect in the early autumn, there’ll be a new set of laws in this regard that will appear in the Russian Parliament.

Aaron Heslehurt

Okay, Andrey, that’s great, thanks very much for your time. Andrey Kostin, the CEO of VTB, Russia’s second largest bank.


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