State majority in VTB could end from 2016, says CEO Andrey Kostin

By:
Dominic O’Neill
Published on:

The CEO of VTB reveals the Russian government could see its stake in the lender diluted if it does not subscribe to a new round of capital-raising in the coming years, as he defends the bank’s state-backed business model and claims majority ownership is not necessary for sovereign support of the country’s second-largest bank by market cap.

The Russian government’s stake in VTB could fall below 50% in a share sale around 2016, if the government does not subscribe to an equity capital raising at that time, says CEO Andrey Kostin.

He says there is no obligation for the government to maintain a majority stake.

“When we need new capital, probably in two or three years’ time, we will go to the market and we will sell another stake, and then the level [of state ownership] could go below 50%,” says Kostin in an interview with Euromoney.

After a $3.4 billion offering earlier in 2013, Kostin says VTB has enough capital to grow at the same pace or slightly faster than the market for about the next three years. That deal saw the government’s stake diluted from 75.5% to 60.9%. The main buyers were the sovereign wealth funds of Azerbaijan, Norway and Qatar.

The government sold an initial 22.5% stake in VTB in an IPO in 2007. By late 2013, VTB’s shares are only around quarter of their value at IPO. In 2013, by early December, shares in fellow state lender Sberbank, which has a bigger retail franchise, had fallen 9%; VTB’s shares had fallen around 25%.

VTB CEO Andrey Kostin
Kostin is against announcing an immediate and complete privatization, as he says he fears the perception of lower government support would have a negative impact on VTB’s credit rating, while the share price could suffer further from the expectation of a deluge of new shares.

“We shouldn’t speed up the process [of privatizing VTB],” says Kostin. “I personally am not in favour of speedy privatization, because I see no advantages of this at the moment. I see disadvantages, but not advantages.

“Nobody can tell me what is bad about being partly state-owned – nobody.”

Kostin contests a perception in Moscow that the Kremlin is more likely to call him than Sberbank when it wants to support a certain sector, company, or even oligarch, because, compared with Russia’s largest bank by market cap, there might be less direct losses by individuals rather than corporate depositors, if VTB fell victim to a crisis.

Kostin likens his role in banking – as he calls “a special art” – to that of surgeon in a state-owned clinic. He says the government would not ask him to extend a loan or force him to make an acquisition, because his position as the head of a commercial bank is respected in the “division of responsibilities” in Russia.

He says the government offers solid support for VTB, majority state-owned or not, and state backing does not give a social or political mandate.

Banks that we call ‘too big to fail’ play a very important role in the economy and the financial sector – in any country,” he says.

“The government’s position is VTB is a systemically important bank and they will support it, even if it is 100% private – it doesn’t matter.”