Why Did Ukraine Nationalize Its Largest Private Bank?

Tyler Durden's picture

Authored by John Mills via The Mises Institute,

In December 2016, the National Bank of Ukraine (NBU) nationalized Ukraine’s largest private bank for what we now know was an incorrect understanding of the facts. It remains unclear who benefitted from this expropriation...

But it wasn’t just a misunderstanding. The nationalization of PrivatBank very likely was the result of a still-unexplained refusal by the NBU to accept the financial reality of the situation.

This extraordinary government takeover has made the banking and economic situation in Ukraine much worse rather than better, and is an almost classic case of government overreach.

The NBU’s inappropriate and unnecessary nationalization has hurt the Ukrainian economy, stolen millions from PrivatBank’s owners and is forcing Ukraine’s taxpayers to bear a substantial additional burden.

The NBU took its action in large part because of what it said was an unacceptable level of related-party loans: 90 percent or more was the number it frequently used.

But Ernst & Young, the global “Big Four” accounting firm the NBU hired to undertake an audit of PrivatBank at the end of 2016, said the actual level of related-party loans at PrivatBank was merely 4.7 percent.

And that very low level (an astounding almost 95 percent less than what the NBU used to justify its nationalization) is itself lower than the level of related-party loans reported a year earlier in a separate audit conducted by yet another Big Four firm: PWC.

Perhaps to protect itself from what will undoubtedly be withering criticism, the NBU is now considering suspending PWC from auditing Ukrainian banks, has accused one of the most renowned and highly esteemed auditors in the world of being “unprofessional,” and is at least hinting that its audits contributed to the situation.

The NBU has claimed that PrivatBank siphoned a majority of its equity to related party loans to enrich the bank’s shareholders. Operating activities show that the cash flow for 2016 was 21 billion Ukrainian hryvnia to client funds, but not to the issuance of loans to related parties.

Similarly, the NBU made an arbitrary, erroneous and harmful decision to regard PrivatBank’s collateral as unacceptable even though a significant amount of the loans that were classified as “impaired” should have been acceptable under IFRS standards.

But it’s not just the NBU’s decision to nationalize PrivatBank that’s questionable; serious issues have now been raised about the way the NBU carried out the nationalization once it decided to move forward.

The NBU’s capitalization of PrivatBank after the nationalization was a transfer of government bonds, rather than cash, that effectively was worthless.

Up to then, the NBU always required the valuation of collateral from independent appraisers so that its value would be recorded appropriately on the balance sheet. But, as E&Y stated in its 2016 audit report, ten days after the nationalization, there was a sudden increase of investments in government bonds that were never valued. Who will buy those bonds now?

But the biggest issue is why the NBU ever thought that government control through nationalization of Ukraine’s largest privately owned bank was appropriate in the first place. PrivatBank had a strong vote of confidence from its customers with 40 percent of the country’s private deposits and serving 44% of corporate clients. It had a strong positive track record of supporting Ukraine’s economy and creating jobs. And, as a report by E&Y (the auditors chosen by the NBU) subsequently confirmed, according to IFRS standards its financials were far stronger than the NBU was charging.

All of this makes the NBU’s nationalization of PrivatBank more of an unnecessary expropriation – a taking by the government – than a good banking practice. That is the textbook definition of a scandal.

 

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Yen Cross's picture

 I'm going to get hammered for this, but  Ukrainian girls/women are smoking hot.

Yen Cross's picture

 They're also smart. Go back to bed,  #norksboy

Troy Ounce's picture

 

Don't panic!

There is always the ECB to come to the rescue with unlimited amounts of money.

 

Vimes's picture

And because they started a civil war everything is dirt cheap too! Germany will be so pleased with itself, they will  reward themselves with some more immigrants to offset the outflow of well educated Europeans.

Shemp 4 Victory's picture

Crap article that doesn't speak well of John Mills and the Mises Institute.

It remains unclear who benefitted from this expropriation...

Clearly zero research went into this article. Expropriation? Private shareholders of PrivatBank appealed to the government with a proposal that the government become full owner, in the interests of the bank's clients.

http://www.fort-russ.com/2016/12/kolomoiskys-privatbank-passes-to.html

Who benefitted? Ihor Kolomoisky, the largest stockholder, who looted PrivatBank until it was a dessicated husk.

http://www.fort-russ.com/2016/12/the-main-question-after-nationalization...

HowdyDoody's picture

Precisely. Kolomosiky didn't arrange to have his US entry ban removed simply because he was scared of the Ukro-Nazi thugs. His position in the US gave him direct access to the levers of power.

Conscious Reviver's picture

Nice work as usual. Mises may have internal redlines that can not be crossed.

Anyhow, people who used to say you were the dumb stooge were clearly wrong.

Fwiw.  The links down thread to WashingtonsBlog discussing Kolomolskys relationship to the Odessa Massacre do not show up when using Google. Duckduckgo delivers the goods. I'm sure Google has a good explanation. /not

To Hell In A Handbasket's picture

Kolomoisky is a member of the fucking tribe. What on this god forsaken earth would lead you think, the Mises Institute of all places, would mention the players involved, who did what, who benefited, who got shafted and who will get away scott-free after looting the bank? Haven't you got the memo? You are just GOYIM and you don't matter. 

Do you think a nigger, wasp, chink, sand nigger, spic, or asian could commit these financial crimes and routinely face no prosecution? Haven't you noticed the Jewish MSM, rarely highlights the misdemeanours of Jews in the financial sector? They don't even reference Madoff anymore. The Mises is about as independent of thought, as a prostitute is independent from her pimp. The Mises is funded by the same parasites that scam us all.

thisandthat's picture

Yeah, Mises seems to have lost the plot at around the same time the Danube stopped being blue...

"That is the textbook definition of a scandal."

No, this isn't a scandal, silly; this is the Ukraine. It would've been shocking if it wasn't shady...

SoDamnMad's picture

They will arrive all smiles, drain your credit cards on gold and diamonds and then dash back home crying that mama is ill.

dogismycopilot's picture

they are also incredibly cheap. Ukie women are on sale in Istanbul, Paris, London, NYC, SF, LA....Ukie women are Porky's biggest export. 

moorewasthebestbond's picture

No wonder the DONETSK PEOPLE'S REPUBLIC broke away from the facist shitshow in Kiev.

Yen Cross's picture

 That's all you got?

 At least you have ethniicity,,,

Ghordius's picture

funny, eh?

both breakaway republics sport the whole Marxist stuff, while some elements in the rest of Ukraine can sport the whole Fascist stuff

is that now a "classic" or an "evergreen"?

meh. perhaps I should say "thank you" to Vicky Nuland. perhaps. but the US involvement in Ukraine does not make Ukraine magically disappear from our neighbourhood... as well as the Russian's

sinbad2's picture

Well it is a proxy war between Marxists and Nazis, Russia and USA.

Alexi-Alexi's picture

have you ever been in Kiev?  are you all retarded here or just yourself?

Long memory man's picture

Do not forget that the Nazis were the National SOCIALIST party.

Alexi-Alexi's picture

Jesus titty fucking Christ....this article is more misleading than America's claim of WMD in iraqistan....

Vimes's picture

Valuable asset confiscation by corrupt governments. I am shocked! What will be next? lying politicians ?  What if they start to  lie about the news too!/sarc  Can remember that a certain Austrian guy, sometime  during the 40's, was actively doing the same. Perhaps the government is running low on scams and imagined this was an easy target.

It is a good thing we still have a beautiful Ukrainian women to look at.

Edit: taking out Kolomoisky who was fighting Poroshenko. seems plausible enough . 

NuYawkFrankie's picture

re It remains unclear who benefitted from this expropriation...

Look no further than the Usual Suspects -'Regime Change' George & The Merry Band Of "Cookies Don't Come Cheap!" NeoCONs

Alexi-Alexi's picture

where is the link to E&Y claim of 4.7% of related party loans?

HalinCA's picture

Like the old joke goes ... the auditors that get the job for the mob know that 1 + 2 = whatever they are told it should be.  Why would E&Y be any different?

Joe A's picture

Because the national bank airlifted all the gold out of the country? So they need to compensate for that?

Ukraine's corrupt to the bone chocolate oligarch president expressed his country's desire to join NATO and NATO's chief Stoltenberg welcomed that idea. Now, allowing Ukraine to join NATO is against NATO's regulations because countries that have a conflict on their terrirtory are banned from joining. Not that NATO would not brush that little detail aside because bombing Yugoslavia to pieces was also outside its mandate. And according to little known paragraph in the EU's Lisbon Treaty, any European can be drafted into an EU army. And according to the recently signed Ukraine EU pre-accession agreement (that was voted away by the Dutch people in a referendum btw.), the EU will respect Ukraine's territorial integrity. So, it is not hard to see where this potentially can lead to.

kingvaclav's picture

Here is video of Ihor Kolomoysky donating $10 million of his loot to the Chabad Lubavitchers and that group honoring him. This is AFTER he plundered Privatbank. 

Conscious Reviver's picture

"Why did Kiev nationalize it's largest bank?"

Ans. To steal assest? To hide the theft of assets?

What do I win?

Shemp 4 Victory's picture

 

What do I win?

Spiderman beach towel with Cyrillic lettering?

Conscious Reviver's picture

How about this,  if we are going Cyrillic, dinner with Anna Chapman? Could that be arrainged?

cat2005's picture

By dinner do you mean sex? LOL.

jmcadg's picture

21 billion of shit for physical.

Someone knows what's what.

Youri Carma's picture

Probably an other CIA/IMF scam.

Conscious Reviver's picture

It's  this Igor guy. If you look into it, you're going to see it's this Igor Kolomosky(sp?)

Conscious Reviver's picture

More on Igor /Ihor.  From Washington's Blog in 2014.

The Key Man Behind the May 2nd Odessa Ukraine Trade Unions Building Massacre: His Many Connections to the White House

Posted on May 18, 2014 by WashingtonsBlog   

Eric Zuesse

http://www.washingtonsblog.com/2014/05/key-man-behind-may-2nd-odessa-ukr...

Youri Carma's picture

TnX very insightful. So deeper into the rabbit hole ...

Vice President Joe Biden's son joins Ukraine gas company
14 May 2014 (BBC)
http://www.bbc.com/news/blogs-echochambers-27403003

In Ukraine, Joe Biden’s son mixes business with pleasure
15 May 2014 (Voltaire Network)
http://www.voltairenet.org/article183803.html

Burisma Holdings is a very secretive outfit. It has been registered in Cyprus since the "Orange Revolution" and has reportedly bought up most Ukrainian gas companies. According to the Anti-Corruption Action Center, Burisma Holdings has been controlled since 2011 by Ihor Kolomoisky. The latter, who chairs the European Jewish Parliament (EJU) and owns half of the Jewish News One TV channel, was appointed on March 2 Governor of Dnipropetrovsk Oblast (province) by the Kiev junta authorities. He later funded the assault troops that perpetrated the butchery in Odessa on May 2.

Ukrainian Employer of Joe Biden’s Son Hires a D.C. Lobbyist
Jul 08, 2014 (TIME)
http://time.com/2964493/ukraine-joe-biden-son-hunter-burisma/

Biden Tells Ukraine to ... Do Nothing
U.S. apparently wants Kiev to keep its maligned government.
8 December 2015, (BLOOMBERG)
https://www.bloomberg.com/view/articles/2015-12-08/biden-tells-ukraine-t...

Joe Biden, His Son and the Case Against a Ukrainian Oligarch
DEC. 8, 2015 (NYT)
https://www.nytimes.com/2015/12/09/world/europe/corruption-ukraine-joe-b...

Conscious Reviver's picture

Re. Strange rabbit holes.  Poor Lavoie Finnicum got arkancided. He gets his own official place on the Killton body count.

Mike Masr's picture

Fuck the US sponsored Banderist neo-nazis in Kiev! Ukraine is now a corrupt banana republic 100% dependent on IMF loans and foreign aid. Good work Obama, Clinton, Nuland & Pyatt!!! 

Anteater's picture

In July 2016 Kerry-Kohn and Republican Congress appropriated $54B from Americans' SS and MC funds to backstop the IMF loans to the Israeli Junta in Kiev, and to create, in McCain's words, a 'war slush fund' he would use to arm and fund Al Nusra and the Caliph in Syria. Immediately after, the Kiev Junta defaulted on the IMF loans, and our SS and MC $30Bs went winging off to Brussels, while McCain funded fake ISIS throat cutting videos filmed in a UK warehouse. Those radioactive junk bonds are still floating around. The Israeli Junta looted $30B of Ukrainians' gold bullion and shipped it to their Israeli pals in NYC, so we can be sure nobody will redeem those junk bonds. They'll be capitalization stuffers. The looting continues. 404.

Too-Big-to-Bail's picture

I'll give them a hint -- whoever now has access to the printer is the one that benefitted from the expropriation

Mike Masr's picture

Forget paintball, go to Ukraine pay money and you get to kill real people!   

Forget playing paintball, wealthy Kiev Ukrainians and foreign tourists can now go to Donbass, Ukraine and for a lofty fee dress up in combat uniforms, get a real loaded weapon, team up with neo-nazi banderist thugs and then live fire on and actually kill real civilians. Wow, how cool. You can go as a Western tourist and kill entire families while you are there. Don't worry, the banderist ukies will tell you, “if they speak Russian they are not really human beings”.

Remember USA taxpayers money is spent on arming the corrupt, Kiev junta while 30,000 homeless US veterans sleep on the streets.

Read the story here!

http://novorossia.today/unbelievably-what-kiev-fighters-arranged-shootin...

 

 

oncemore's picture

John should publish his work on NYT and CNN.

It does not fit ZH.