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Home News Russia’s VTB puts $9 bn price tag on Bank of Moscow

Russia’s VTB puts $9 bn price tag on Bank of Moscow

Published on 18/07/2011

Russia's second-largest bank VTB said Monday it would acquire full ownership of its debt-ridden rival Bank of Moscow for $9.15 billion in a deal establishing its dominance in the Moscow retail market.

The state bank’s announcement came after it reported a 70-percent jump in first quarter income to 26 billion rubles ($920 million) and improved its outlook for 2011 to a net profit of 100 billion rubles ($3.55 billion).

“We are raising our forecast. By the end of the year, the group will make 100 billion rubles,” RIA Novosti quoted VTB chief financial officer Herbert Moos as saying.

Both figures were helped by a massive state bailout package this month that underscored the bank’s importance to the country’s financial system at a time of global jitters and European debt concerns.

VTB’s robust forecast came just 10 days after Moody’s ratings agency downgraded its outlook to “negative” following its partial acquisition of the Bank of Moscow in a deal that revealed unexpected flaws.

A post-acquisition audit of the Bank of Moscow — itself a member of Russia’s top five — showed the group holding $9 billion in bad debts from real estate deals which were backed by now-deposed city mayor Yury Luzhkov.

That revelation prompted a record a 395-billion-ruble ($14.2-billion) Central Bank injection that will be partially financed by VTB. Its stake in the Bank of Moscow is due to rise from from 46.48 to 75 percent plus one share in October.

The state bank said Monday it felt confident that the state bailout and a second $3.13 billion syndicated loan it secured earlier this month would ensure that the Bank of Moscow does not hurt its financial standing.

“The Group does not expect any negative impact on its financial performance to result from this acquisition,” VTB said in a statement.

The bailout package for the Bank of Moscow will kick in only after VTB ups its stake to 75 percent and will also require the bank to pour up to 100 billion rubles ($3.55 billion) into its new acquisition.

VTB’s Moos said the Bank of Moscow’s chain of more than 380 national outlets made it worth acquiring whole.

“We expect the entire price we pay for 100 percent of the Bank of Moscow to reach 258 billion rubles ($9.15 billion),” RIA Novosti quoted Moos as saying.