Russia launches biggest bank bailout

1st July 2011, Comments 0 comments

The bank founded by Moscow's deposed city chief received the largest bailout package in Russia's history on Friday following a takeover by state-controlled lender VTB.

The 395-billion-ruble ($14.2-billion) cash injection for the Bank of Moscow followed a review of its books by its new owners and a decision by the government to keep the country's fifth-largest banking firm afloat.

The bank was founded in 1995 with the help of former Moscow mayor Yury Luzhkov and remained at the heart of a massive city property empire that unravelled shortly after his removal by the Kremlin last year.

VTB acquired Bank of Moscow earlier this year in a hostile takeover that saw its top executive flee to London in the middle of an embezzlement probe.

The Central Bank said 295 billion rubles in taxpayer money would be issued directly by the Deposit Insurance Agency at just 0.51 percent -- well below the rate of inflation.

The remaining money would be put up by VTB investors. The Central Bank said the cash infusion would help "remove conditions causing insecurity in the Bank of Moscow's financial position."

The Bank of Moscow was initially hit by political scandal when its former head Alexei Borodin was accused by prosecutors of approving a $435 million loan backed by city budget money for a real estate company run by the mayor's wife.

Borodin fled to London when investigators pressed charges against him and the mayor's wife was last reported to be in Austria.

The fugitive banker has branded all the charges against him part of a broader political vendetta and expressed outrage Friday at suggestions that the Bank of Moscow was mismanaged under his rule.

"I am, like everyone else, shocked at the size of the $14 billion bailout that the Central Bank has just announced," Borodin said in a statement released on his official website.

Borodin insisted that "the principal motivation behind the change of control of Bank of Moscow was political" and noted that the Central Bank never outlined where specifically the missing money went.

VTB for its part said in a statement that the Bank of Moscow had "huge potential" and promised to incorporate it into its international banking service.

The government also dismissed accusations that it was picking favourites in Russia's banking wars.

Finance Minister Alexei Kudrin said the bank's takeover by VTB was logical because it eased the expense of saving the lender.

"A bailout option that did not include VTB would have been more expensive," the RIA Novosti news agency quoted Kudrin as saying.

© 2011 AFP

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