Meet the Russian Billionaire Who's Buying Up His Country's Banksby and
Russian recession claims dozens of small lenders this year
Private banks benefitting from sanctions over Ukraine
Russia’s economic crisis has put dozens of banks out of business this year and is threatening many more. But for others, it is turning into a bonanza.
PJSC B&N Bank, founded by Mikhail Gutseriev, the billionaire owner of OAO Russneft, is one of the beneficiaries.
In recent months, the company has gobbled up a string of troubled lenders to become one of Russia’s largest private banks. That pace of growth was hard to imagine before U.S. and European Union sanctions hobbled state banks and oil prices plunged, catapulting the country into its first recession since 2009.
The crisis has created new opportunities, board Chairman Mikail Shishkhanov, 43, who is Gutseriev’s nephew and shares ownership with his uncle, said in an interview in his office in Moscow. Portraits of Gutseriev, President Vladimir Putin and Prime Minister Dmitry Medvedev served as decor, along with a model sailing ship.
“We aren’t earning as much as we planned, but we have the possibility to grow through acquisitions,” Shishkhanov said between drags on an electronic cigarette.
In the latest deal, the bank agreed in June to buy MDM Bank, bringing to seven the number of troubled lenders it has acquired since December. MDM, the biggest of the acquisitions that also include Rost Group, was the 23rd largest bank in Russia when the deal was announced. B&N now is Russia’s fifth-largest non-state bank and the ninth-biggest overall, according to Fitch Ratings Ltd.
While B&N is leading the charge, it isn’t the only private lender capitalizing on the crisis. At least three others - PJSC Bank Otkritie FC, PJSC Promsvyazbank and OJSC Credit Bank of Moscow -- also have gorged on assets, benefiting from a flood of cheap central bank funding to shore up the financial system and from sanctions preventing state-owned banks from borrowing on U.S. and EU markets.
Shishkhanov declined to say how much money he has spent on the expansion. Gutseriev, 57, one of Russia’s richest men with $2.9 billion according to Bloomberg Billionaires Index, said in a July interview with RBC newspaper that his family was pulling hundreds of millions of dollars from abroad to Russia to recapitalize its banks.
An ethnic Ingush businessman who served in Russia’s lower house in the 1990s and went on to make his fortune in oil, Gutseriev has also invested in luxury hotels, including the five-star National near Moscow’s Red Square, and controls the Minsk-based potash company Slavkaliy. In 2007 he left Russia amid allegations of illegal activity including tax evasion, which he denied. He returned from London three years later after the charges were dropped.
“You have to be extremely greedy in business,” Gutseriev said in an interview earlier this year. “You have to treasure every dollar you make, you’ve got to obsessively accumulate assets to sell them afterward.”
It’s a gamble. Bank lending is collapsing under pressure from high interest rates and a drop-off in demand and no turnaround is expected soon. If Russia’s economy continues to shrink next year -- which the central bank deems likely at current oil prices -- B&N may wind up with a heavy pile of bad debt.
The Russian economy may shrink 3.8 percent this year and an additional 0.6 percent in 2016, Birgit Hansl, the World Bank’s lead economist for Russia, said Wednesday in Moscow.
B&N’s acquisitions have already hurt its bottom line, according to Standard & Poor’s analyst Ekaterina Marushkevich. The bank reported a net loss attributable to shareholders of 2.1 billion rubles ($32 million) in the first half of 2015. That compares with a profit of 1.1 billion rubles a year earlier. B&N is rated B with a negative outlook by Standard & Poor’s.
“While B&N has the potential to become systemically important and qualify for more government support due to its size, the risks may outweigh the benefits,” Marushkevich said by phone. B&N has so far received 8.8 billion rubles from Russia’s 900 billion-ruble bank recapitalization plan.
Chocolate and Cigarettes
B&N Bank retains the traditions of a smaller bank. In a conference room on the top sixth floor of its headquarters in Moscow, guests can help themselves to free cigarettes -- the old-fashioned kind as well as the electronic variety -- and to company-branded chocolates. Shishkhanov said he is seeking to take advantage of what he sees as Russia’s undervalued assets to expand in banking, real estate and natural resources.
“Russia has weathered enough crises to show that getting in at the bottom of the market can be a smart move,” Tom Adshead, chief operating officer at Macro Advisory in Moscow, said by phone. “You just need to have faith that Russia’s at the bottom of a cycle rather than in a depression.”
Kremlin aides are urging Russia’s central bank to delay introducing tougher capital rules for lenders, arguing they may deepen the economic crisis by forcing banks to cut corporate lending, people with knowledge of the matter have said.
With Sberbank OJSC and VTB Group unable to refinance debt in dollars, B&N and others have used central bank crisis measures to step up foreign-currency lending. The two state-controlled banks, among several sanctioned over the Ukraine crisis, account for over half of Russia’s retail deposits.
“Sanctions didn’t open any doors per se. Rather, new possibilities appeared as a private organization,” Shishkhanov said.
By September, B&N’s assets had swelled five-fold to 1.3 trillion rubles from a year earlier, according to Fitch. Mainly a corporate lender, with consumer loans representing just 14 percent of its assets, it is seeking a balance between the two lines of business. The purchases could bring it closer to that goal.
B&N has for years aspired to become a nationally important lender. After its acquisitions, it has more assets than some of the 10 banks already considered systemically important. That means that it may be eligible for more government support.
“Once all the assets have been incorporated and we get everything in order, we’ll have a seat at that table,” Shishkhanov said.