The replacement of senior Bank of Moscow executives was fairly predictable after the high-profile sacking of Moscow Mayor Yury Luzhkov. That’s the way “oligarchic capitalism” works; key companies were bound to have their executives replaced, at the very least.
The way it was done wasn’t far out of the ordinary either: a criminal investigation combined with an aggressive PR campaign. Any sensible businessman should have read the writing on the wall and given up, unless they wanted to end up behind bars like Mikhail Khodorkovsky or, worse still, Sergei Magnitsky. There’s nothing new about the practice of selling a business at a ridiculous discount to obscure but clearly influential buyers. The best one can hope for is that they are properly registered, unlike Baikal Finans Group (the company that won a huge chunk of the disgraced Yukos), which was registered in “London” – a pub in Tver.
Anyone with even a passing knowledge of the business developments in Russia in the past decade could hardly see the Bank of Moscow case as unique. A revival of corporate raiding is also out of the question because it never died out in the first place. What we are witnessing is rather the continuation and harmonious development of a long-standing government policy.
The only difference is that Moscow eventually lost its bank. This is bound to affect the manageability of the city’s economy in the longer term. It is also unusual that state-controlled VTB, of all banks, should take it over. The two banks’ structures are almost identical, and many of their offices are located next-door to one another, making them natural rivals. This means that the takeover will result in VTB having twin units.
Buying Bank of Moscow, especially at a discount, made sense for VTB, but only as a short-term acquisition. It allowed the buyer to cover its losses with the profits of its newly acquired asset. This dramatic improvement on VTB’s balance sheet will certainly boost VTB’s market capitalization and raise more money from its partial privatization.
But these benefits are decidedly short-lived. The Bank of Moscow was a unique asset in one important way, although few have considered this: it was a predominantly municipal bank in which Russia’s richest city (and one of the richest in the world) kept most of its wealth. That wealth provided the bank with a solid financial foundation. Without that, it may soon find itself dangling in midair.
The new mayor, Sergei Sobyanin – who probably had no choice but to give away this gem of the Moscow business crown to stronger players – may soon be asking himself: Why should the city keep its money in the Bank of Moscow when Moscow no longer owns that bank?
Bank of Moscow is by no means living off the Moscow coffer. It is a vast, independent and wisely diversified business. But stripping it of Moscow accounts – which would be a perfectly reasonable marketing decision for the new mayor – may severely affect its financial standing, turning the once sought-after prize into a heavy burden.
Time will tell if this theory is right. But it is also possible that the Bank of Moscow story will soon confirm one thing: Raiding, even if performed by state-controlled players and with state interests in mind, is ultimately unprofitable.
