New Otkritie CEO Says Russia Copies Fed in Bank NationalizationsBy and
Federal Reserve’s takeover of AIG in 2008 a model for Russia
Mikhail Zadornov said it’s a ‘normal approach’ during a crisis
Mikhail Zadornov, chosen by the central bank to run nationalized Bank Otkritie FC PJSC, said the regulator was inspired by the Federal Reserve’s handling of the global financial crisis.
The U.S. experience of taking government stakes in institutions like American Insurance Group Inc. is a positive example of how the state can help mitigate a financial crisis, the incoming chief executive officer said in an interview. The benefits of nationalizing large banks outweigh any risks from the state’s increased presence in the sector, Zadornov said.
The takeover in recent months of two of Russia’s top-five private lenders, Otkritie and B&N Bank PJSC, has raised concerns about competition in an industry where the government already controls the biggest banks, including Sberbank PJSC. While the central bank says it will resell the stakes after cleaning up the banks, unloading banks in Russia is not always easy. Plans to privatize VTB Group stalled after a share sale in 2013.
“In the last crisis in 2007-2008, there weren’t any conflicts of interests that prevented the nationalization of leading insurer AIG and several banks,” Zadornov said. “The state fairly quickly recapitalized them and, after writing off the bad debts, sold them again on the market.”
The bigger state role has drawn criticism from some of Russia’s remaining privately-owned banks. Alfa-Bank JSC’s Chief Executive Officer Alexei Marey told a conference this month that the nationalizations constitute an “enormous conflict of interest.”
The cleanup of Otkritie and B&N may cost the central bank up to 820 billion rubles ($14 billion), Deputy Governor Vasily Pozdyshev said on Russia 24 television this month. The two banks will likely be merged before they are sold on the market, according to Zadornov.
The government hopes to reduce its stake in VTB from 60.9 percent to 50 percent by 2019. That may be wishful thinking: CEO Andrey Kostin said in June that the privatization can’t be successful while the lender remains under international sanctions. The U.S. and the European Union barred some Russian lenders from long-term borrowing on international markets in retaliation for Russia’s actions in Ukraine.
Zadornov, Russia’s former finance minister and currently the head of VTB’s retail division, is set to take over at Otkritie in January. He said cleaning up the two banks, which both struggled with asset quality after expanding aggressively following the imposition of sanctions on their state-owned competitors in 2014, will take several years.
“I don’t understand why two specific cases that didn’t surprise the market mean that there’s a threat to private banks with good earnings and well-built business models,” he said. “The central bank strategically wants to unload these assets and avoid this conflict of interest.”