The Bank of Russia's official website posted a document called “Information Notice on the Bank of Russia’s Acceptance of Messages from Interested Parties of Intention to Participate in the Processes for the Sale of Shares of PJSC Bank FC Otkritie”.
Simply put, the Public Joint Stock Company Bank “Financial Corporation Otkritie” is up for sale. But the search for a buyer has been ongoing for over a year. What is wrong with Otkritie Bank, and why is the Central Bank unable to find a buyer for it?
Let's talk about the bank's history. The bank was formed by merging more than 10 banks, including Khanty-Mansiysk Bank (KhMB Otkritie), Petrocommerce Bank, Novosibirsk Municipal Bank, Sverdlovsk Provincial bank, investment bank Otkritie (IA Otkritie), Russian Development Bank, Binbank, Absolut Bank, Rosgosstrakh Bank, and partially Trust Bank, and others. This happened from 2000 to 2010 under the Otkritie Holding financial group.
In 2017, the Central Bank of the Russian Federation took full control of the bank.
Before this, measures were put in place to financially recover FC Otkritie.
Also in 2017, a mechanism for financial recovery or rehabilitation was introduced with the involvement of the Bank of Russia. This involves providing financial aid to banks and credit organizations, including acquiring shares, offering concessional loans, and other actions.
We don't know the specifics of who the Central Bank helps, but we do know that the following are currently being reorganized with the Central Bank's participation:
– Moscow Industrial Bank (Reg. No. 912)
– Promsvyazbank (Reg. No. 3251)
– National Bank TRUST (Reg. No. 3279)
Returning to Otkritie bank, on August 29, 2017, the Central Bank of Russia issued Order No. OD-2469 “On the Appointment of an Interim Administration for the Management of the Credit Institution Public Joint Stock Company Bank Otkrytie Financial Corporation, Moscow”. On August 30, a temporary administration was formed from 34 Central Bank officials under the leadership of Dmitry Sergeevich Pozhidaev, Deputy Director of the Financial Recovery Department of the Bank of Russia.
On December 21 of the same year, the temporary administration ceased its activities and the bank was considered “recovered”.
Then, on August 03, 2021, the Bank of Russia accepted messages from interested parties indicating their intention to participate in the procedures for the sale of shares of PJSC Bank FC Otkritie.
The document shows what could be put into action.
“50% of the total shares of the Bank plus one share are expected to be sold by the Bank of Russia to a strategic investor.”
The Bank of Russia plans to sell at least 50% plus one share to a strategic investor.
The Central Bank planned to sell the bank before the end of 2021 but the deal has not happened yet. There were rumors that Gazprombank and the Region-Rossium group might be interested in buying FC Otkritie, which is owned by Russian businessman Sergey Sudarikov. It is worth noting that Region acquired a significant stake in the Moscow Credit Bank (MKB) in 2020.
Will Mr. Sudarikov also require Otkritie? That remains to be seen!
According to sources from Kommersant:
“The buyers of the blocking stake may be the structures of one of the largest businessmen who does not have his own financial business.”
However, Gazprombank, which does not have its own financial business, and “Region” have joined the ICB. In this context, the Central Bank does not rule out the possibility of selling shares through an IPO, which experts believe is not advisable for the regulator.
The Central Bank, having spent at least 0.5 trillion rubles on the reorganization of FC Otkritie, hopes to find a strong strategic investor who can recoup the money spent.
We must wait for the buyer. If one does not appear organically, he may end up being appointed.
According to an expert, a top manager of a leading bank in the Russian market, this plan will not succeed anytime soon:
“Given the complexities of our economy, it is clear that the sale of Otkritie Bank could be a way to fill the budget if sold to a private investor. However, this may not stimulate the banking sector much, since 80% of our banking sector is state-owned. The Central Bank wants to sell Otkritie soon, but has been struggling to sell state-owned banks for a long time. For instance, the Asia-Pacific Bank was sold by the Central Bank 3 years after being liquidated in 2021 to a Kazakh investor for 14 billion rubles.
“Opening” is a huge entity. Whether it is for sale or not is debatable. Nonetheless, it can be said that there are no real interests in the current reality, unless they are people involved in the system. Large banks are hard to sell and may attract a foreign investor or a large industrial group. However, under the current circumstances, it is unlikely that anyone will invest in their own bank of such a size. They are more likely to acquire a small bank and expand it to meet their own needs.”
Return nested
Many investors have had unsuccessful projects. At some point, a phrase comes up. Let’s try to at least return the nested. In 2021, the Central Bank was prepared to sell both a controlling stake for 250 billion and a quarter. The deal has already been arranged with a certain party. There are specific steps being discussed, suggesting that some parts of Otkritie Bank might be separated and sold individually to the buyer.
The Central Bank's message states that depending on the interest from strategic investors, there may be a consideration to separate the insurance business and/or pension business from the banking group before selling the Bank’s shares.
Transactions like these are often approved quietly in high-level offices. However, in this case, the offer has been on the market for a long time. Public statements seem like a joke, similar to when the rabbi’s parrot at the border was ready to return to the promised land “at least as a carcass, at least as a stuffed one.”
Let’s state the conclusions as sharply as possible:
1. The stated price does not match the bank's value. The price is influenced by the funds spent on the bank's restoration. This indicates that the price is either too high, or, from a different perspective, the bank's condition was not brought to the desired level. This raises the question to the Central Bank – were the funds invested by the bank's owner, which came from citizens in one way or another, used effectively?
2. The market is underdeveloped and monopolized – the share of the largest bank in many sectors exceeds a third or a half. State-owned banks and financial institutions like Sberbank, VTB, Gazprombank, Rosselzokhbank and others clearly hinder competition. Such markets won't encourage investors to seek investment. As the regulator of this market, the Central Bank cannot escape criticism for the current situation.
There are many good fellows, not a single matchmaker
At different times, the market also speculated on GPB as the main buyer. Even Sberbank's German Gref and Elvira Nabiullina tried to persuade him to hold the asset for the sake of appearances. The departure of the former deputy head of the retail block of FC Otkritie bank, Alexander Pakhomov, in January 2022, to become the Chairman of the Board of Post Bank also raised questions – could this be for the merger of these two quasi-state banks that have reached a plateau, setting up pseudo-competition for other state-owned banks? Regardless, potential buyers for this asset have been waiting in the wings for almost a year.
