"Sense Bank": nationalization or bankruptcy?
Sanctions imposed on Russian businessman Mikhail Fridman in Ukraine and Europe complicate the situation of his business assets in our country. Specifically, Sens Bank (formerly Alfa-Bank) and IC Alfa Insurance are facing the options of nationalization or bankruptcy, according to Focus.
Mikhail Podolyak, an advisor to the head of the President's Office, stated in early December that the nationalization of Alfa-Bank (now Sens Bank) had already begun.
“Alfa-Bank has been rebranded. Today it is already Sense Bank. There are already procedures for nationalization, as such. The nationalization of Alfa-Bank will look different from PrivatBank, because there is a much smaller circle of individuals with deposits and so on,” Ukrinform quotes Podolyak’s statement.
As of December 14, there was no official announcement about the transfer of shares in the bank of Russian oligarch Mikhail Fridman to the Ministry of Finance of Ukraine. Additionally, Andriy Pyshny, the head of the board of the National Bank of Ukraine, declined to comment on the fate of the bank in an interview with Forbes Ukraine.
The NBU is carefully monitoring the financial stability of Alfa-Bank and aims for it to operate smoothly and steadily, regardless of its shareholders, as stated by the NBU.
The nationalization process for Sens Bank. Under what conditions will it come under state control?
According to Focus, Alfa-Bank shareholders previously announced their readiness to inject $1 billion into the bank. They also expressed willingness to transfer their shares for free if the government or the National Bank decides to transfer control of the bank to the state or another shareholder. However, Andriy Pyshny from the NBU stated that they did not receive the necessary documents for the additional capitalization procedure from Alfa shareholders.
Under current laws and regulations in Ukraine, sanctioned Russian beneficiaries cannot provide additional funding to the bank or sell it to a new owner. Evgeny Artyukhov, senior partner at A.S.A Group, explained that a moratorium on the transfer of corporate rights by individuals associated with the aggressor state is in effect, making it legally impossible to transfer ownership to those linked to the Russian Federation.
Any additional funding for Alfa-Bank will be carried out after the nationalization, as shareholders under sanctions are currently unable to inject funds into the bank's capital.
Experts interviewed by Focus suggest that the nationalization of Mikhail Fridman's bank has already been decided. Yevhen Dubogryz, an Associate Expert of CASE Ukraine, expressed that amidst full-scale aggression, the process of changing the ownership of Alfa-Bank/Sens Bank was initiated on February 24, 2022. He believes that given the circumstances, nationalization is the easiest way to change the bank’s ownership.
"Sens Bank": is it going to be owned by the government or go bankrupt?
Vitaly Shapran, an economist and member of the Society of Financial Analysts, remembered that in the beginning of October, a special law was passed by the parliament to control the nationalization of important banks, which Sens Bank is a part of.
“The nationalization of the bank“ Sens” was launched along with the adoption of the relevant bill. But to complete it, a political decision is needed, whether such a decision has been made, I don’t know, ”the expert says.
The Law "On Amendments to the Tax Code of Ukraine and Certain Other Laws of Ukraine on the Peculiarities of Decommissioning a Systemically Important Bank from the Market under Martial Law" (Bill No. 8069) makes it easier to transfer a systemically important bank to state ownership during martial law. The law states that a bank is withdrawn from the market when the NBU decides it is insolvent because it did not meet its obligations to depositors and other creditors within the agreed period or specified by Ukrainian legislation due to a lack of funds.
According to this law, Friedman's bank will only be nationalized if it is declared insolvent. Currently, experts believe there are no grounds for this as the bank is stable and poses no risk to customers and their funds. However, if the bank fails to meet its obligations to customers or return the refinancing loan on time, the NBU can declare the bank insolvent and start the procedure for acquiring its shares for 1 hryvnia, just like it did with Privatbank.
In October, the Verkhovna Rada passed a special law for the nationalization of "Alfa-Bank." Photo: Rada.gov.ua
For the state to nationalize a bank, it must first be declared insolvent. This gives the state the opportunity to enter the capital of the bank. Another option is to buy the bank from its owners, but in the case of Sens Bank, this is not possible due to political reasons. Therefore, the only option for the state to enter the bank's capital is to declare it insolvent and then decide on the nationalization process, similar to Privatbank, or follow the norms of the proposed law for withdrawing systemically important banks from the market. The second option occurs when the bank is declared insolvent due to liquidity problems and failure to fulfill obligations to depositors and customers," explained Evgeny Dubogryz.
Without a license. What is the future of the insurance company of Russian shareholders "Alfa Insurance"
In the financial sector, Alfa's shareholders in Ukraine also own a large insurance company, Alfa Insurance. In early December, the NBU suspended the license of this company to provide financial services and gave it a year to address the issues, until December 5, 2023.
“These measures of influence were applied due to the non-compliance of companies with the requirements of the Regulations on licensing and registration of financial service providers and the conditions for their activities to provide financial services, approved by the Resolution of the Board of the National Bank of Ukraine dated December 24, 2021 No. 153 (as amended), namely requirements for the business reputation of financial service providers,” the National Bank noted.
On the same day, the NBU suspended the license of Vyacheslav Boguslayev, Motor Garant Insurance Company, and earlier in November, the National Bank found that Boguslaev's reputation was not blameless due to his Russian citizenship.
The future of IC Alfa Insurance is uncertain. The owner may want to sell the company, but cannot due to restrictions on share operations because they are a Russian citizen. The license was suspended, and they have a year to fix it, but it's hard to see how things will change in a year regarding assets of citizens from an aggressive country and the sanctions on them, according to Vyacheslav Chernyakhovsky, head of the Insurance Business Association.
According to the 2021 results, Alfa Insurance was one of the top ten insurers in Ukraine.
Although the license suspension does not mean a complete stop in the insurer's activities. It prevents them from making new insurance contracts, but existing contracts remain valid under Ukrainian law. The company can still provide services for these contracts without a license, explained Igor Chudovsky, managing partner of Chudovsky and Partners Law Firm.
Not being able to make new agreements may harm the insurer's finances, as Vyacheslav Chernyakhovsky mentioned.
“The suspension of a license usually does not lead to the restoration of the company's activities – over time, it simply will not have money to pay for administrative and business expenses, when it is impossible to conclude new contracts and receive an influx of finance. The reserves will only be enough to pay for insurance events, but for this it will be necessary to drastically reduce all costs by firing almost all staff, abandon offices, sell property, etc.,” Vyacheslav Chernyakhovsky noted.
The company may try to change its shareholders within the year given to fix issues with their owners. They could follow the example of Alfa-Bank or find new shareholders who are not under sanctions. However, organizational changes may not convince the regulator, according to Evgeny Dubogryz.
Shareholders of Sens Bank and SK Alfa-Insurance are sanctioned for connections to the Kremlin, despite Friedman denying it.
Vyacheslav Chernyakhovsky mentioned the possibility of the National Bank appointing a manager at Fridman's company, similar to what was done at Sens Bank. It seems that the NBU expects some resolution to be found during the year given to fix violations.
“Such a long period – a whole year – speaks of that they can prepare some kind of solution for IC Alfa Insurance and IC Motor-Garant,” Chernyakhovsky believes.
If there is no decision regarding the change of ownership of IC Alfa Insurance is not found, the company will simply have to curtail its activities and leave the Ukrainian market.
“A number of government decisions require the application of profile sanctions to companies with a “Russian trace”, which also include: a ban on making payments and servicing the accounts of such companies by agent banks, suspending permits for the right to legal commercial activity, a thorough check of the commercial model and financial flows of such a company, often with the opening of criminal proceedings by law enforcement agencies, which provides for the seizure of assets and the prohibition of the company's freedom of operation. Under such conditions, the normal further activity of companies to which sanctions mechanisms have been applied does not seem possible, ”summed up Yevgeny Artyukhov.
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