Russian Depositors On Edge After Second Major Bank Fails In Under A Month

Tyler Durden's picture

If once is happenstance, twice is coincidence, and three times is a full-blown collapse in the financial system, then Russia may be getting close.

Just three weeks after Russia bailed out its largest and very politically connected private bank, Otkritie, after an unexpectedly acute bank run resulted in the bank's near-collapse, already nervous Russian depositors shifted their attention to another domestic lender, and earlier today Russia’s B&N Bank, the country’s 12th biggest lender by assets, also sought a bailout from the central bank. While it is unclear how much this bailout would cost Russian taxpayers, when the central bank took over Otkritie last month, it said it might need up to $6.9 billion, the biggest ever bailout in the country.

B&N Bank, which is controlled by Russian oligarch Mikhail Gutseriev and was not on the central bank’s list of systemically important lenders, said it had under-estimated the problems within the banks it had bought during an expansion drive. “Our objective is, with the support of the central bank ... to conduct an effective financial rehabilitation of the bank,” said Mikail Shishkhanov, who was named as chairman of B&N Bank, whose assets account for 2 percent of the Russian banking system, according to ratings agency Fitch.


Mikhail Gutseriev

Some background on the now defunct bank: B&N Bank, founded in 1993, is [or rather was] part of a sprawling conglomerate controlled by energy tycoon and billionaire Mikhail Gutseriev - said to be worth over $6 billion - that includes oil firms, a property development portfolio and an electronics retailer.

The bank embarked on an expansion drive after 2010, buying smaller lenders including Moskomprivatbank, Rost Bank, SKA-Bank before completing its biggest deal in 2016, a merger with MDM Bank, one of Russia’s largest lenders.

 

Fitch said last month that the bank was one of a handful of Russian lenders, including Otkritie, that had seen “an outflow of interbank funding” in the first few months of the year.

Gutseriev is perhaps best known in the west for the March 2016 wedding of his son Said, on which he reportedly spent $1 billion and was attended by around 600 guests with Sting, Jennifer Lopez and Enrique Iglesias performing.

Luxury cars including Rolls Royces and Bentleys were seen parked outside the venue 

In an amusing U-turn, Shishkhanov, who stepped down as B&N Bank chairman in May this year handing over the role to Gutseriev, who is also his uncle, Shishkhanov said he had decided to take over the role again to work with the central bank, saying in a statement that problems at Rost Bank and MDM Bank “turned out to be much more serious than we had believed” in tough markets

And then there is this amusing anecdote, which suggests that bank frauds in Russia and the US are not that different:

B&N Bank staff declined to comment outside its head office, three kilometres (1.9 miles) from the Kremlin, while a truck belonging to a firm called Shredder Express, which offers mobile document shredding, was parked on a private road in front.

The second consecutive intervention by the Russian central bank has prevented market contagion... for now: on Wednesday the monetary authority confirmed it was in talks with B&N’s owners and would decide on a bailout in the near future. Furthermore, according to market insiders quoted by Reuters, the huge state banks that dominate the sector in Russia are solid, while "the problems which have triggered crises at B&N and previously at Otkritie bank are likely to be contained within a handful of private lenders."

Unless of course they emerge as systemic: the bigger problem is that just like in China, Russian banks, which were already under stress from an economic slowdown made worse by Western sanctions, have seen bad debts rise over the past three years. Only, unlike China which can create virtually infinite new credit to rollover existing debt plus enjoy the PBOC's backstops for every risky institution, in Russia quasi-insolvent banks eventually have their equity wiped out following nationalizations.

As Reuters adds, the financial health of some worsened after the central bank forced them to make more rigorous provisions for non-performing loans, while margins have tightened due to lower interest rates.

* * *

According to Alexander Abramov, professor at the Russian Higher School of Economics, this event is not yet a reason for panic, but points to a serious crisis of banking supervision. "If the head of a large bank appeals to the Central Bank and it becomes an official news, this is a serious event," he pointed out in the first place, in an interview with Vestnik Kavkaza.

"The reasons that could cause the need for B&N Bank's sanitation are similar to those factors that led to the reorganization of Otkritie FC Bank. The main reason is the use of credit resources to lend the group's projects, that is, risky credit policy. High costs of raising funds also could cause troubles," Alexander Abramov explained.

"The event does not speak about the banking crisis, as it's only about selective banks. The obligations to depositors will be fulfilled: almost all deposits are insured, and the Central Bank firmly expresses its intention to help. There is another crisis: the stability of the banking system," the professor at the department of the stock market and investments at the Higher School of Economics concluded.

The news of the bailout did not result in any major market moves: while Russia’s composite financial sector underperformed the broader index of Russian stocks, it was down only 0.9% earlier in the day.  Meanwhile, the Russian rouble firmed, adding 0.4 percent to 57.9 versus the dollar and gaining 0.3 percent to 69.54 against the euro.

According to analysts, the muted response was because the problems are within a small number of mid-sized private banks which are parts of struggling wider business groups, pursued rapid expansion, and lent to high-risk businesses such as real estate.  The central bank also has the resources to step in if the others fail, stopping a wider contagion, they added.

Kirill Lukashuk, senior director at Russian ratings agency ACRA, said that wider risks stemming from B&N Bank’s difficulties depended on the form of central bank bailout.

 

If it is along the same lines as Otkritie rescue, with senior creditors protected and no freeze on deposit withdrawals, “the effect on the market will be extremely limited”.

Perhaps: if the Russian central bank has unlimited funds to keep bailing out the Russian oligarch's pet banks which they used mostly to launder illicit funds, then sure. Then again, where there are two bank runs in under a month, more are guaranteed, and all that would take to cripple the Russian financial system is a panic at one of the larger domestic banks, rekindling memories of the near collapse Russia experienced in late 2014 when crashing oil prices and a plunging ruble, sent Russian rates as high as 20% and pushed the country to the verge of hyperinflation.

In other words, if the "deep state" really wants to hurt Russia, it knows what to do. 

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Looney's picture

 

The Russian banks are, at least, ALLOWED TO FAIL. What a novel concept!  ;-)

Looney

38BWD22's picture

 

 

That's a good point there, Mr. Looney!

Shemp 4 Victory's picture

 

rekindling memories of the near collapse Russia experienced in late 2014 when crashing oil prices and a plunging ruble, sent Russian rates as high as 20% and pushed the country to the verge of hyperinflation.

An untoward display of histrionics. I don't recall a "near collapse" that "pushed the country to the verge of hyperinflation". I do remember the raising of interest rates, but did they really reach 20%? I remember them at around 17% for a brief time.

In other words, if the "deep state" really wants to hurt Russia, it knows what to do.

Oh, riiiiight. [wink wink, nudge nudge] The deep state is just pretending to fail at every effort to hurt Russia in order to give Putin a false sense of confidence. I get it...

yomutti2's picture

More charming third world banking stories.

Shemp 4 Victory's picture

Oh, look, it gurgled from the toilet.

yomutti2's picture

Oooh, such clever Russian humor. It really shows the wit and sophistication that we have come to expect from there. Or from any third grade class.

 

 

francis scott falseflag's picture

 

There will be no nuclear war, especially in North Korea.

The BRICS will not sell their Treasuries to ruin the dollar.

 

In 5 or 10 years, 1984 will blanket the Earth and its economy.

Domestically, countries will use their present currencies.

Their Central Banks will use a bitcoin for Balance of Payments.

The CB's bitcoin will be like gold after Bretton Woods.

Only sovereign states will be able to own it.  Traders will not. 

The rules for paying for imports in CB bitcoin will be established

and are irrelevant to the schleppers here (unless you are an importer).

 

As far as the peoples of the world are concerned: 

The lucky ones will live in Eurasia and East Asia.  

The hapless in Oceania.

emersonreturn's picture

curious this is happening the morning after russia announced it won't take $ at its ports for oil??

rayborbon's picture

That failing sound is of Putin destroying the bank accounts of Russian families at will. Get in the bread line you feeble peasants. 

BlindMonkey's picture

You must be new to the planet.  That is not what politicians do with an election coming up soon.

cheech_wizard's picture

Ahhh, the myopia of the terminally stupid...

Presenting the Obama years.

http://www.bankrate.com/banking/list-of-failed-banks/

In 2009, American banks failed at the rate of ~11 per month

In 2010, American banks failed at the rate of ~13 per month

css1971's picture

You don't know what a bank account is, do you?

Shemp 4 Victory's picture

 

That failing sound is of Putin destroying the bank accounts of Russian families at will. Get in the bread line you feeble peasants.

Ahh, raymoron, made me laugh, from a Ukrop to hear about poverty, like a bum...

jme540's picture

Nobody knows as much about poverty as the Ukraineans.

They have a country with great soil perfect for agriculture full of people known for willingness to work hard 16 hours a day for almost nothing (340 $ per month in Czech Republic) and the country still somehow manages to reman being super poor.

Volkodav's picture

     suprised today bread price drop to 30 ruble

     that for kilo loaf fresh baked no GMO... milk  lower also  

     record harvest and world leader wheat export no GMO

     https://www.rt.com/business/403932-russia-organic-food-export-gmo/

     better worry about your own country

Teja's picture

Organic food, no GMO? Cultural marxist snowflakes or what, the Russians?

jme540's picture

More or less organic is only what they grow on their dachas (weekend houses).

No GMO because nobody sane would depend on patented food controlled by Americans.

jme540's picture

More or less organic is only what they grow on their dachas (weekend houses).

No GMO because nobody sane would depend on patented food controlled by Americans.

cheech_wizard's picture

I want to live in Russia, solely because of their tax rates.

 

HominyTwin's picture

They need to follow superior, western model: bail out banks, rescue executives and shareholders, and also make sure executives bonuses get paid. What would happen to their families if they did not get their bonuses. Think of the children!

ReturnOfDaMac's picture

Funny, you can only find capitalism in Communist countries like Russia and China now.  Strange new world ....

FatTony7915726's picture

Wealthy Russian jews taking handouts from the government through the CB of Russia,  in the end, the public will pay!!  Pillaging at its best!

GreatUncle's picture

+1

All the bad debt (IOU's that cannot be paid) removed so no more "taxpayers paying interest on bad debts!"

Bernie Madolf's picture

Don't be retarded.

The banks assets (loans) are transferred to another bank along with insured liabilities (deposits). The only haircuts are on the deposit side

Did u up vote urself or do u have a retarded sibling?

kochevnik's picture

I remember these banks all appear in 1993 when Yeltsin made basic law and initiatives.  Thousands of banks open, many with no capital.  Later minimum standards set and many banks closed.  In 1993 bank was bad place for money, as most banks were scam made by Soviet bureaucrats with connections.  I was to open account in new bank near Taganskaya when my gf saw woman in top window, putting large gold chains on herself.  Queue of Russian depositors three blocks long.  When they learn I have connections abroad, they became afraid and refuse my money in any case

My economist friend makes better advise for quality banks. I worked with RusskieCredit for years until 1999 economic crisis. Connected in Moscow have access to better banks than man on street. Also one may open account in foreign bank, such as Bank Austria with banking reference

HRClinton's picture

Alexander (((Abramov))). Doling out "advice" that's self-evident to Economics 101 peeps.

38BWD22's picture

 

 

I read a story or two re Russia mandating payments in rubles in their ports.  But, King Dollar (for a while at least) is TRUMPING BRICS currencies.

Quantum Bunk's picture

Just 2 BRICS own 1.5 trillion in US Tsy's. They could flush the dollar and every day that they don't is a day that they live in cowardace

38BWD22's picture

 

 

USTs are the only huge pool of liquidity still left (other than gold).  My guess is Treasuries will not be sold by overseas big money anytime soon.

2019 or so is a different story.  But, the BRICS (Jim On'Neill's (a Goldman-Sachs employee) created the acronym) have epic-scale problems too.

FarCanal's picture

Why sell,they are a Latent threat, at least not yet.

Quantum Bunk's picture

They will be sold for the same reason that you think they wont be.

Father ¢hristmas's picture

The day they dump them bonds, or rather, the day a couple guys have a meeting or shoot each other an email about how they should dump them bonds *wink, nod, knowing chuckle*, America will nuke a couple of its own cities and blame it on the countries colluding to puke Tsy's, and that's that.

Dudes think I'm just being a bitter, racist ass black guy when I talk about how crazy these crackers are.  But remember, these motherfuckers will destroy entire ME regions and nuke the Korean peninsula before they even audit the Fed.

Donald got elected and he won't even criticize Janet Yellen lol

kochevnik's picture

Jew MEs are not whites, though they play that way

opport.knocks's picture

1. Who would they sell them to? The EU, the Saudis, Goldman, Rothschild?

2. Selling at a loss and slightly devaluing the dollar would increase the value of their own currencies? Not what they want, yet.

It is not as simple as you would like it to be.

francis scott falseflag's picture

"The sestertius (or denarius) wasn't built in a day."

Kevin Trader's picture

no worries, Putin is playing 7D chess, this is not even an issue, ridiculous

Quantum Bunk's picture

Russia let a ton of banks fail in 2014 and the central bank raised rates to 17%

Now Russia has its FX reserves built back up above  pre oil crash and pre sanctions levels. Inflation just hit an all time low.

These banks now are just part of an accounting cleanup. They used some of them to get around sanctions in 2014.

youngman's picture

I would bet the people are pulling their money out and its going to bitcoin....thats the Russian way

AustrianJim's picture

If that's true get ready for the great Russian peasant slaughter of 2018.

38BWD22's picture

 

 

I would bet the same way.

Does Russia respect investments made by foreigners?  I would not keep my money there.

cheech_wizard's picture

Because it could never happen in the US...(yeah, right,,,)

Upon implementation of the Gold Reserve Act...

Foreign companies even had their gold confiscated. The Uebersee Finanz-Korporation, a Swiss banking company, had $1,250,000 in gold coins that were being held in the United States.

Standard Disclaimer: OFAC ring any bells?

kochevnik's picture

Yes. I worry less about my deals here than in the West, which is full of scammers. Worse the Western scammers have government support, as in Vancouver. Is Russia a tricky place to invest, even for locals?  Yes  If you are honest you will admit any lucrative investment has risks anywhere in world

francis scott falseflag's picture

You prolly don't have a lot of real money anyway.

mily's picture

But but but, de-dolarization, BRICS etc

RawPawg's picture

12th Biggest Lender?

No Sweating Till Your In The Top 5...Real Sweating if ya is #2