VTB CEO Says U.S. ‘Nearly Bankrupt’ as Instability Lingers

Andrei Kostin, chief executive officer of VTB Group, Russia’s second-biggest bank, said the U.S. is “nearly bankrupt,” roiling the financial industry and stifling credit flows.

“The constant threat of a financial crisis, defaults hangs over the financial banking sector, and on the whole, the overall situation on the global market remains very complicated,” Kostin said at a conference in St. Petersburg today. “We see that the United States is nearly bankrupt.”

Standard & Poor’s last month said the U.S. risks losing its top rating unless policy makers agree on a plan by 2013 to reduce deficits and debt. European finance ministers last week for the first time raised the possibility of talks with bondholders over extending Greece’s debt-repayment schedule as concerns mount that the country won’t be able to pay its debts after last year’s 110 billion-euro ($156 billion) bailout.

Russian Prime Minister Vladimir Putin said today that U.S. budget policy can’t be an example for Russia to follow because it relies on an “excessive” level of debt. The premier last month lashed out at the U.S. Federal Reserve for seeking to bolster the economy by printing money and buying Treasuries.

Not an Example

“They have once again issued government securities and the Federal Reserve happily bought them, meaning it printed the money and channeled it into the economy,” Putin said at a business conference in Moscow. “And this can’t serve as an example.”

The Russian government is seeking to cut foreign borrowing and rely on domestic resources to spur growth, Putin said.

Russian central bank Chairman Sergey Ignatiev said today he doesn’t think U.S. lawmakers can avoid lifting the country’s $14.3 trillion debt ceiling. The Treasury Department has said Congress must raise the limit by Aug. 2 to avoid the government defaulting on its loans.

“I don’t see how the U.S. could let that happen,” Ignatiev said in St. Petersburg. “They will have to agree” to raise the limit, he said. “We are following the situation in the U.S. and other countries, including on debt.”

‘Icelandic Volcanoes’

Greece, Portugal and Spain are “like Icelandic volcanoes - - one moment they are erupting, the next they die down,” Kostin said. “There’s still a lot of instability.”

The main risk facing Russia’s financial industry is that banks don’t have enough capital, Kostin said.

“There’s no way to get away from the task of consolidating the banking sector,” he said. “I would add that from the point of view of attracting capital and better transparency, banks should be nudged to start placing shares on exchanges.”

Kostin also called for more oversight and stiffer penalties for bank management found responsible for asset stripping.

“If things are out of control in the country, then who is going to invest?” he said. “There needs to be more severity and consistency in our decisions so that these things don’t remain unpunished.”

More rigorous oversight will help improve Russia’s investment climate, Kostin said.

To contact the reporters on this story: Scott Rose in St. Petersburg at rrose10@bloomberg.net; ikhrennikov@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net.

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.

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