Political risks and accounting difficulties are behind Russia's largest banking bailout of 400 billion rubles ($14.39 billion) for the country's fifth largest bank, Bank of Moscow, the necessity to save which was revealed after a recent takeover, analysts said.
Bank of Moscow was the capital's investment vehicle under former mayor Yury Luzhkov, who managed Russia's wealthiest city for 18 years, during which his wife Yelena Baturina became the country's richest woman with a $2.9 billion fortune earned in the city's construction business.
Luzhkov used to be a member of the ruling United Russia party, headed by Prime Minister Vladimir Putin, but last fall angered the Kremlin by suggesting it needed a stronger and more decisive leader than President Dmitry Medvedev who then fired him over a lack of trust.
In February, state-controlled VTB bank purchased 48.46 percent of Bank of Moscow from the new Moscow government and on Friday Bank of Moscow received a 295 billion ruble loan from the central bank. VTB, Russia's second largest bank, will contribute 100 billion rubles to recapitalize Bank of Moscow. The equity injection should take VTB's stake to the 75 percent threshold required to qualify for state aid.
"The central bank is likely to have shut its eyes to (the state of affairs in the bank) because the bank was connected with the United Russia party," an investment company analyst told RIA Novosti.
"Money has been stolen from the bank. Why has it popped up now? Because now there is the possibility to sort it out. A full portfolio revision started only after the purchase, and after the problem of servicing some loans connected with companies of (former bank head Andrei) Borodin, Luzhkov and Baturina came up. After they lost their positions, the loans moved from the payable category to the bad and hopeless loans category."
Uralsib analyst Leonid Slipchenko said Bank of Moscow's problem was common to the Russian banking system as it is difficult to classify loans to affiliated firms.
"The role of the central bank is highly exaggerated ... It is clear that our banking sector is carrying systemic risks. It is connected with the classification of affiliated loans. Crediting such structures involves risks. It is difficult to classify them without a detailed check which is not reasonable in a market economy. The bank should monitor its risks itself," he said.
However, there is still no clarity about the amount of bad loans held by Bank of Moscow.
According to Valery Miroshnikov, head of the Deposit Insurance Agency, which will allocate central bank's bailout to Bank of Moscow, bad loans amount to 150 billion rubles, while loans to Bank of Moscow's affiliated companies amount to 360 billion rubles.
The Audit Chamber, which is now checking Bank of Moscow, said bad loans amount to some 300 billion rubles, while VTB supervisory council member Sergei Dubinin said only 60 billion was an obvious hole in the bank's assets.
But Uralsib and Alfa-Bank analysts were skeptical about these figures.
"As far as I understand, a full auditors' report was not made public, and we can only guess what happened there," Alfa-Bank's Eldar Vagabov said.
Slipchenko echoed: "I would not take the published figures at face value."