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A.Kostin: “We expect quite a strong performance of our group this year”

 
20.07.2011

Carol Massar

VTB is Russia’s second largest bank and earlier this week, the company posted record profits of 25.1 billion rubbles or $924 million for the first quarter. That is up 70% from a year ago. The bank’s CEO, Andrey Kostin, has been visiting Bloomberg today. He joins us now here in studio. Andrey, good to have you here with us. So you did have a record quarter here, record profits here. Do you expect that momentum to continue?

Andrey Kostin

Andrey KostinYes. We, well based on the first quarter results, we reviewed our forecast for 2011 and instead of 88 billion rubbles, we expect a net profit now not less than 100 billion. So we expect quite a strong performance of our group this year.

Carol Massar

How does the acquisition of Bank of Moscow kind of fit into that?

Andrey Kostin

Well, I think we, at the moment, passed through the most difficult time. I think we, of course, established to not move the management, the new management. Then we negotiate with the government the financial support package, which is very efficient, which is not using the budgetary money, but the loan of a central bank. We are planning technically to complete all the procedures by October.

Matt Miller

Andrey, let me ask you. From what we’ve seen over the last few years happen with Yukos and Lukoil, it seems that the Kremlin has a lot to do with the way business goes down in Russia. Is their presence the same in banking?

Andrey Kostin

There’s a totally different case from what you mentioned. I mean the former management gave about $12 billion loans to their own use and bought some assets with this and then created a problem for the fifth largest bank in Russia. That’s unfortunate case, but at the moment, as I said, it was resolved with the help of VTB and the central bank and they very much believe that it’s quite exclusive case for the Russian banking sector.

Carol Massar

Andrey, when you look back though at that Bank of Moscow takeover, I mean, do you feel like you did the proper due diligence because you did uncover what billions in dollars of bad debt after you bought it. So as you look back, did you say, you know, we didn’t do as through a job as we needed to do?

Andrey Kostin

Well, we didn’t do it just based on information provided by the management of the bank and information available. Well, it’s very important to underline that we were buying friendly from the friendly shareholder who was the Moscow government. But the management, who officially kept only less than 20% stake in the bank effectively control not only the management, but all the supervising board and other decision-making boards. So effectively, I mean, that we could not get more information with the management at that time was in the bank and I think there was no other way to move ahead as how we did it.

Matt Miller

You know, Andrey, well I guess what I was trying to ask previously is that a lot of investors want to invest in Russia. A lot of Americans want to put their money there. It’s obviously a fast-growing market. It’s emerging market where people see a lot of opportunity, but the rule of law is often questioned. Do you think you could say something to assure American investors that the rule of law is important to Russian companies as well?

Andrey Kostin

Well, I mean, if you take a Bank of Moscow case. First of all, the Russian government has been provided necessary support for foreign investors not to lose any money at all. Of course, all the obligations will be completely fulfilled by the new owner and by the Bank of Moscow. Secondly, there’s four criminal cases opened in regard to the previous management and I mean some charges where criminal charges brought against them. Actually, the court took a decision for arrest over chair president and deputy chairman of the bank, but they are hiding somewhere. One of them definitely in London.

Carol Massar

Andrey, we’ve run out of town and I feel like we just scratched the surface, but thank you so much. You have to come back.

Andrey Kostin

Thank you.

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