Why did Andrey Kostin fly to London?

EBRD buys Russia’s second bank without wasting words

Vneshtorgbank chairman Andrey Kostin met European Bank for Reconstruction and Development President Jean Lemierre in London on Monday. In addition, the sale of Vneshtorgbank’s 20% of shares to EBRD was touched upon at the meeting.

According to Andrey Kostin, a meeting with the EBRD president took place in accordance with agreements previously achieved in St.Petersburg between Russian Prime Minister Mikhail Kasyanov and Jean Lemierre. Andrey Kostin informed the EBRD president of Vneshtorgbank’s observation of the agreements. It was agreed that the parties would meet in Moscow in September during Jean Lemierre’s visit to Moscow.

The European Bank for Reconstruction and Development was designed to buy Vneshtorgbank shares last year; the issue was discussed with former president of the Russian bank Yury Ponomarev. The amount of the deal did not exceed $300 million, although Yury Ponomarev expected the sum would be $350-400 million.

Originally, EBRD seemed quite satisfied with the fact that Vneshtorgbank belonged to Russia’s Central Bank; moreover, the participation of the Central Bank was believed to be a guarantee of the deal’s success. However, Mikhail Kasyanov had a different opinion on Vneshtorgbank privatization and on EBRD as one of the bank’s shareholders. President Vladimir Putin took control of the situation. The RF Government replaced Viktor Gerashchenko, who would not consent to the deal, with Sergey Ignatyev, who comes from St.Petersburg; Vnesheconombank President Andrey Kostin, who is close to the prime minister, was appointed Vneshtorgbank president. EBRD is now negotiating the issue with the new president of the bank.

The European Bank for Reconstruction and Development has offered to buy shares of a somewhat different bank, a bank that combines Vneshtorgbank and Vnesheconombanks' commercial assets. The RF government, to whom the Central Bank assigns the 99,9% of Vneshtorgbank shares that it owns, acts as a guarantor of the seriousness of the intentions. Moreover, the gradual but ultimate withdrawal of the Central Bank from Vneshtorgbank's capital is an obligatory condition of the deal. EBRD even reserves for itself the possibility to turn down the deal if the Central Bank refuses to withdraw.

It is quite natural to ask why EBRD needs control over Vneshtorgbank.

In addition to the fact that Vneshtorgbank is now the most transparent among Russian banks, it is also Russia’s second bank regarding the amount of its equity capital. It has a good reputation and significant credit lines abroad despite the fact that it concludes about two thirds of deals on the domestic market. As far as the decision on the deal was passed on a high political level, its motives are every likely to remain a secret for majority of people.

Control over Vneshtorgbank hardly agrees with EBRD's traditional policy, because the bank prefers to finance low-risk projects mostly connected with government-guaranteed programs for medium and small businesses. Analysts say that EBRD is famous for its cautious and weighted approach to any projects. Moreover, EBRD never bought large shares in banks controlled by the government. It is not ruled out that, for this very reason, the RF Government wants the Central Bank to withdraw from Vneshtorgbank for further privatization of the bank and to strengthen it with Vnesheconombank's commercial assets.

Indeed, according to a Vneshtorgbank privatization project developed by the Central Bank and EBRD and approved by the RF Government, EBRD will buy 20% of Vneshtorgbank shares for further re-sale in five or seven years.

It is quite clear that such an important shareholder as EBRD in Russia’s leading bank is very useful for the country on the threshold of coming financial problems and a probable, God forbid, default. Consequently, EBRD runs no risks as usual, because, in any case, it can get rid of its share without any losses.

Russia’s banking community is somewhat cautious and distrustful of information about EBRD’s possible control over Vneshtorgbank. The tension observed among the Russian party reveals wishes of the government to sell Vneshtorgbank shares to EBRD at any price. This may mean the desire of the new Vneshtorgbank president to have in the future a completely privatized bank, free from governmental custody and commitments on the government’s debt. It is clear that EBRD will receive sufficient payment agreed upon by both parties for its noble work. It is still not clear whether Russia will lose control over Vneshtorgbank or it will return under the government’s custody as a financial institution of little use. Russia, as is traditional, has momentary objectives only; consequences of rash decisions are usually left for the next government.

Dmitry Slobodyanyuk PRAVDA.Ru

In the photo: Vneshtorgbank president Andrey Kostin

Translated by Maria Gousseva

Read the original in Russian: http://www.pravda.ru/main/2002/07/23/44572.html

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