Billionaire Owners Watch Otkritie Flail as Russia Reboots Banks

(Bloomberg) -- As Russia’s second-biggest private bank implodes, its billionaire owners have been conspicuous by their absence.

By leaving Bank Otkritie FC to fend for itself, the four shareholders controlling more than a third of the company -- their combined fortune valued at over $20 billion -- may be giving the authorities little choice but to swoop in with a rescue. Now the central bank could be left holding the bag as it reportedly considers taking control of the troubled lender amid a run on its deposits.  

“Minority owners are typically less incentivized to provide support,” said Alexander Danilov, a Fitch Ratings analyst. “The magnitude of outflows is too big for them to cover, plus I imagine their wealth is mostly stakes in companies and not cash.”

While private banks have been on the defensive since the regulator began a purge in which over 300 firms have lost their licenses, some tycoons have stepped up to keep their institutions afloat. The chief executive of billionaire Mikhail Gutseriev’s Safmar Group said its B&N Bank may be recapitalized by a total of 25 billion rubles ($427 million) this year. In 2004, the owners of Alfa-Bank JSC provided $800 million as customers pulled funds, stemming the panic.

Otkritie Holding, which controls the bank, has an unusually diverse ownership structure. Two Lukoil PJSC billionaires, Vagit Alekperov and Leonid Fedun, precious metals magnate Alexander Nesis and internet entrepreneur Alexander Mamut own a combined 36 percent of the group.

Otkritie may be transferred to a new central bank-controlled fund created to save failing lenders, although a final decision hasn’t been made, Vedomosti reported, citing several unidentified people in the industry. Its debt tumbled into distressed territory after the publication on Friday, with subordinated bonds due in April 2019 slumping to the lowest level on record.

Should the Bank of Russia intervene, it would represent the first failure by one of the 10 lenders deemed “systemically important.” Investors are worried that the regulator may impose losses on Otkritie’s creditors as it seeks to stop the use of bailouts, which cost the state 1.1 trillion rubles in 2014-2016, often without solving the underlying problems at the troubled banks.

Left Alone

More often than not, no aid is forthcoming for private lenders from their owners. The central bank pulled Jugra Bank PJSC’s license when it found majority shareholder Alexey Khotin’s offer to help lacking, despite a challenge from the Prosecutor General’s Office. Tatfondbank PJSC shareholders held talks with the regulator for more than half a year before it pulled the plug.

Private lenders have already been closing in droves amid a cull by the central bank that’s yanked one in three licenses since 2014. Their state-controlled rivals, with access to cheap funding and a government backstop, have been the biggest winners from the cleanup as many owners balk at resuscitating their under-capitalized institutions.

What Otkritie’s billionaire owners have in common is that they became shareholders as they sought to reduce their exposure to the banking business. Alekperov and Fedun received their 20 percent, held by their U.S.-sanctioned IFD Kapital, after Otkritie agreed to take over a bank founded by Lukoil in 2013.

Owning Up

Nesis and Mamut gained stakes -- currently 9.8 percent and 6.7 percent, respectively -- via a similar share swap for their Nomos Bank in 2012. Adding to the complexity is a 10 percent holding in Otkritie’s parent company owned by state-controlled VTB Group, which also worked on many deals with the bank in the past, including financing its acquisition of Nomos. VTB said this month that it has no plans to take an additional stake in Otkritie.

Fedun told Russian newspaper RBC Daily on Aug. 17 that Otkritie didn’t experience any financial problems and he didn’t plan to either deposit new funds or withdraw money from the bank. IFD’s press service confirmed the comments Friday and declined to elaborate. A spokesman for Nesis declined to comment and Mamut’s press service didn’t respond to a Bloomberg query.

There were no talks about transferring the lender to the fund controlled by the central bank, according to Otkritie’s largest shareholder, Vadim Belyaev, who returned as chief executive officer of the bank’s parent this month to calm investors.  

Depositor Stampede

Meanwhile, Otkritie’s clients withdrew more than a quarter of deposits in June and July, resulting in an outflow of 433 billion rubles. Funding from other lenders fell by nearly half, according to Russia’s Analytical Credit Rating Agency, which put Otkritie on review for a possible downgrade Aug. 22.

Before the central bank makes a decision about Otkritie’s fate, it will need to consider the lender’s position as Russia’s eighth-biggest holder of retail deposits, according to Expert RA analyst Anastasia Lichagina.

“The situation is made more difficult because many private Russian banks have close ties with one another,” Lichagina said. “A default at any one could trigger a ‘house of cards’ effect on the others, undermining the banking system’s stability as a whole.”

--With assistance from Yuliya Fedorinova Anna Baraulina and Ksenia Galouchko

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Paul Abelsky, Tony Halpin