Russian Bank Disappears Without Settling With Creditors

Bankruptcy proceedings of the best bank of Yeltsin’s epoch have started

If now you ask ordinary Russians about the bank SBS-Agro, or about Stolichny bank, nine of ten people will hardly remember what kind of banks they were and when they operated. Meanwhile, SBS-Agro was one of Russia’s five largest banks before the 1998 crisis. The bank’s commitments made up 53 billion rubles. The number of SBS-Agro’s private depositors made up over 1 million, only the RF Savings Bank had a bigger number of depositors. It may sound surprising that the bank may exist even now. In fact, the Central Bank of Russia liquidated SBS-Agro’s license of bank operations only on January 16, 2003; and only on January 20 the Agency for Restructuring Credit Organizations (ARCO) announced beginning of bankruptcy proceedings in the bank. And this is despite the fact that the bank wasn’t operating since the end of 1998.

ARCO Director General Alexander Turbanov informed about initiation of the proceedings yesterday. In his words, resources of the bank for settling accounts with creditors have already exhausted. In other words, money that could be paid back, has been already paid back, and there will be not a single kopeck more. The Agency for Restructuring Credit Organizations registered a claim on declaration of the bank’s bankruptcy in the Moscow Arbitration Court. The bankruptcy proceedings won’t last longer than half a year. 

Meanwhile, debt of SBS-Agro to private depositors is about 470 million rubles and 42 billion rubles - to companies depositing their money in the bank, these are mostly Russian agricultural complex enterprises. The ARCO director general thinks that the creditors will be able to squeeze some sum more out of the bank during the bankruptcy proceedings. 

Bank Stolichny was known as the most famous and the most pushing bank in the epoch of Boris Yeltsin. The bank was active in many spheres and everywhere was a success. This was mostly due to the personality of its founder Alexander Smolensky, who was very close to Boris Yeltsin in the early 1990s. It was even said that Yeltsin received lots of complaints and discreditable information concerning Alexander Smolensky, but never took any measures in connection with these complaints. What it more, when it was clear that the Prosecutor’s Office might open a criminal case against the Stolichny bank president, Boris Yeltsin awarded the man with People’s Friendship decoration. This scared the Prosecutor’s Office, and no more obstacles were put in the way of Smolensky’s business.

It is interesting, but in 1997 Alexander Smolensky due to his connections in the Russian political circles managed to swallow up the state-run Agroprombank almost for free. According to some sources, majority of the Stolichny bank’s assets were withdrawn abroad before the presidential elections in 1996 and never got back to the country. Auditing held after the elections determined that activity of the bank was poor and it was on the verge of bankruptcy. The results of the auditing were available to State Duma deputies. However, despite the strong resistance of the Duma deputies, Alexander Smolensky achieved agreements that budgetary loans for restoration of agriculture in the country must be  placed in Agroprombank, that was already controlled by Stolichny bank. At that very period the bank was called SBS-Agro.

As the governmental commission for currency exchange regulations reported (the commission was liquidated by the government headed by Yeugeny Primakov in 1998), majority of the budgetary loans was also withdrawn in the off-shore zones; then the money was laundered and transferred into accounts of the First OVK bank, which was also controlled by Alexander Smolensky. This certainly made deputies indignant, and they demanded that the government must provide information concerning the budgetary loans appropriated for restoration of agriculture. To tell the truth, Russian agricultural producers never received the money.

Before the summer of 1998, before a default was officially declared, SBS-Agro was also on the brink of bankruptcy, its situation was rather hard. However, the Central Bank and the Economy Ministry provided a considerable stabilization credit for SBS-Agro during the default. It was declared that if SBS-Agro went bankrupt, the domestic agricultural industry would lose the money meant for restoration. However, that money also disappeared.

Alexander Smolensky himself immediately escaped to Vienna (Austria) and refused to get back until he received guarantees that he wouldn’t be prosecuted in Russia. Then Chairman of the Central Bank, Sergey Dubinin helped to obtain such guarantees to the banker, and Alexander Smolensky got back to Russia and started searching money to make payments to creditors of the bank. At that very period, he started creation of a new bank empire.

At that very period the Russian mass media reported that Alexander Smolensky was an unpretentious director general of a “small” bank, the First OVK bank. Efforts of the “honest” banker were not in vain; the First OVK bank opened its branches all over the country, and at the end of 200, Alexander Smolensky (he was at the head of the holding Financial-Industrial Federation) re-opened the bank Stolichny in Moscow.

It should be mentioned that a great part of SBS-Agro’s debts are not yet paid. The ARCO Director General Alexander Turbanov said that after the 1998 default, depositors of the bank could get back not more than 40% of their deposits. It was highly likely that other creditors could get nothing at all without the help of ARCO. The SBS-Agro’s assets were estimated at the rate of 3.5 – 5 billion rubles at that period. For this very reason, ARCO didn’t initiate the bankruptcy proceedings and didn’t withdraw the bank’s license. ARCO started restructuring of the bank.

In the words of the Agency’s director general, the restructuring was initiated to call in question all dubious transactions of the bank; some part of the accounts receivable were got back during judicial procedures. As a result of this activity, creditors got about 3.5 billion rubles. Fortunately, an amicable treaty was concluded with the creditors in February 2001, which reduced losses of the depositors almost three times. The whole sum paid back to the depositors made up 5.4 billion rubles; 130 million rubles were paid back to the Russian Savings Bank. 350 million rubles of obligatory payments to the budget were also cleared off. And this is all: when the bankruptcy proceedings are over, none of the SBS-Agro creditors will get back a kopeck from the bank.

Picture: Alexander Smolensky

Dmitry Slobodanuk

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Author`s name Michael Simpson