There can be no stronger sign of progress in Russian financial structuring than the news of the revival of Inkombank, one of the institutions worst hit in the crisis.
A year ago, Russia’s largest commercial bank closed its doors, unable to pay its creditors. Inkombank disappeared from public view, only to emerge again a few months ago when management announced plans to resurrect the bank. Some belittle the efforts and have given up on the notion that even one Russian bank might restructure and reopen in a decent way. They might be wrong.
In May, the bank’s supervisory board – with all main shareholders on it – accepted a complicated restructuring plan. The driving force for their decision is that it’s more profitable to reopen Inkombank than to bankrupt it. The bank’s main creditors tentatively agreed.
“After nine months in the job, I believe that all legal, commercial and political requirements could be fulfilled to keep the bank open,” says Inkombank’s temporary general manager Vladimir Alexeev, who was appointed last November by a Russian court to look after the interests of the bank’s 300,000 personal deposit holders and 35,000 business creditors.
With resurrection its new goal, Inkombank has started repaying small private depositors their savings that they deemed lost after the bank’s collapse in August 1998. Although payment was late and not for the full amount of $342 million, Inkombank is the first of Russia’s major failed banks to make an effort to service its debt to private savers.
Larger, commercial creditors have been asked to swap debt for equity in the company to the tune of R35 billion (nearly $6 billion a year ago, now $1.4 billion). In its first creditors’ meeting, a majority of foreign and local creditors – 56.7% – have accepted that offer, a move that would bring Inkombank under foreign control.
If the swap goes ahead, Inkombank’s new foreign owners – from largest to smallest – would be Société Générale, WestLB, Bayerische Landesbank, the Bank of Cyprus, Hypo Vereinsbank, Deutsche Bank, UBS and others.
Debt owed to the Russian state and central bank could be restructured. Russian federal ministries, including the tough tax ministry, have indicated that they are willing to strike a deal.
While working on controlling its liabilities, Inkombank is trying to increase its capital base. Current shareholders, mostly Russian companies, have promised $200 million in fresh capital, to be paid in steps.
A further boost to assets should come from a complicated battle with former employees. The goal of this struggle is to undo deals executed immediately following last year’s crisis, in which assets were stripped from Inkombank by selling them for symbolic prices to outside companies.
Many of these assets are back on the balance sheet, and more are to follow, says Inkombank president Igor Kurlanov. No criminal cases have started yet against sellers, he says, but investigations are underway. These investigations could be linked to a major Russian money laundering operation via the Bank of New York in which, among others, Inkombank was implicated.
Inkombank’s strategy to pay clients and retrieve assets differs from other Russian banks that collapsed during the crisis, but were allowed to continue operating. These banks have set up “bridge banks” into which they transferred assets, outside creditors’ reach.
Even while still alive, Inkombank was not a typical Russian bank. Unlike other banks it was taking deposits and lending to business. But it also had appalling risk management. Billions of dollars were lost in non-performing loans and currency futures.
Many liked it for being different. Some still do. One of those is the European Bank for Reconstruction & Development. In August the bank agreed to help finance a new Inkombank audit that should be the heart of a final restructuring plan. The EBRD was also widely expected, as a 2.28% shareholder, to pledge its share of fresh capital for a new Inkombank.
So far, it is unclear how much fresh capital Inkombank needs. A critical audit under the auspices of the World Bank, based on October 31 1998, showed Rb82 billion in liabilities against Rb15 billion in assets. In an interim assessment this summer, assets had risen to Rb39 billion against liabilities of Rb42 billion.
Working with the old figures, the central bank opposes restructuring. “The central bank is our main opponent and thinks we’re in a position that we cannot be revived,” Kurlanov says. Kurlanov hopes that over time the central bank will soften its attitude or that new leadership will have a change of heart.
Inkombank’s relationship with the central bank has improved recently and the central bank discussed Inkombank’s restructuring plan with management in August.
These developments point to growing chances for a resurrection, but banking analysts remain negative. “It’s a mystery to me why shareholders would put money in Inkombank if they are not going to be the main shareholders in the end,” says analyst George Pavlov with the Russian European Center for Economic Policies in Moscow.
Analyst Margot Jacobs at investment bank United Financial Group doubts all creditors understand the complicated restructuring plan. “Management is reasonably cooperative, so creditors keep the conversation going. But I doubt if they even have the same goal,” she says.
Jacobs also wonders if the court would allow Inkombank to reopen, even if creditors agree with a debt restructuring. “It could go either way,” she says.
The possibility of Inkombank going bankrupt has crossed the mind of temporary administrator Alexeev. In that case the bank will be sold, either in parts, or in whole to a strategic investor.
This investor might try to resurrect the bank. Interested parties are already knocking on Alexeev’s door. John van Schaik
