Warning about Russia’s banking woes comes true

But investment adviser who predicted it can’t speak to the press

MOSCOW: Turns out Sergei Gavrilov was right about Russia’s banking troubles. But the Moscow-based investment adviser, who warned his clients last month that bailouts were coming, can’t take credit.

He’s not allowed to speak to the press, says his employer, Alfa Capital.

On Aug 10, Gavrilov said in a private note to clients leaked to a local newspaper that Alfa Capital had information that four closely held banks were on the cusp of central bank interventions. Since then, bailouts of two of the lenders are under way, with the regulator agreeing on Wednesday to pump money into B&N Bank PJSC.

Alfa Capital, which has the same owner as private lender Alfa-Bank JSC, swiftly retracted the note after coming under Bank of Russia scrutiny.

But with Gavrilov’s predictions proving prescient for B&N and Bank Otkritie FC, investors are dumping Eurobonds of the other two banks he mentioned, Promsvyazbank PJSC and Credit Bank of Moscow PJSC.

“There will be few private banks left,” said Alexander Lebedev, the Russian tycoon who owns the National Reserve Bank in Moscow, as well as London’s Evening Standard and The Independent newspapers.

Lebedev, also a former member of parliament, predicts that once the dust settles, the state will own 80% of the banking industry from 60% now.

Credit Bank of Moscow chief executive officer Vladimir Chubar said “we’re not worried” when asked by phone about the fallout from the B&N rescue, while Promsvyazbank said in a statement that its financial position is stable and diversified.

The Bank of Russia didn’t immediately respond to a request for comment.

Russia has spent tens of billions of dollars through bailouts and deposit protection to contain a crisis that was, in part, precipitated by its own central bank.

The Bank of Russia gave lenders like Otkritie, B&N and Promsvyazbank access to cheap loans to take over smaller and struggling rivals in the wake of international sanctions and slumping oil prices since 2014.

That strategy created opportunities for a new generation of banks not directly tied to the Kremlin, particularly as US and European Union penalties targeted state banks like Sberbank PJSC, which holds about half of Russians’ savings.

The problem is a lot of those assets were in worse condition than they bargained for, leaving Otkritie, for one, with a capital deficit that could be as large as 400 billion rubles (US$6.9bil). S&P Global Ratings estimates troubled assets represent more than 20% of industry loans.

Promsvyazbank’s US$250mil of bonds due in October 2019 fell to a record on Wednesday, pushing the yield up 49 basis points to 6.49%. The US$600mil bond Credit Bank sold in March fell almost four cents on the dollar to 89.98 cents by 5:01pm in London yesterday.

“I am still not positive on Credit Bank of Moscow and Promsvyazbank,” said Yannick Naud, the head of fixed income at Banque Audi in Geneva, which reduced its holdings of Russian banking bonds in the summer and doesn’t own debt of the two lenders.

“We should see further concentration in the Russian banking market which benefit the largest, and the best connected, players.”

Investors aren’t too worried this will erupt into a full-blown banking crisis, though. While Otkritie suffered from a run on deposits in the summer, the central bank bailout eased concerns among citizens that their savings were at risk. — Bloomberg