Russian Bank Closures Put Squeeze on Oligarchs
Summary:
Russia's Central Bank on June 29 pulled the licenses of four of
the country's major banks -- Uneximbank, Mosbiznesbank,
Promstroibank, and Mezhkombank. While seen as primarily a
gesture aimed at winning the favor of the IMF, the bank closures
may reflect a deeper struggle against and among Russia's
oligarchs and the death throes of Russia's experiment with the
West.
Analysis:
Russia's Central Bank chief, Viktor Gerashchenko, withdrew the
operating licenses from four leading banks -- Uneximbank,
Mosbiznesbank, Promstroibank, and Mezhkombank -- late on June 29.
Coming immediately under fire from Russia's banking community,
Gerashchenko argued that he made the decision under pressure from
foreign lenders, particularly the IMF, and it was in accordance
with Russia's new bankruptcy laws.
Russia's banks, many of them at the heart of the financial,
industrial, and media empires of Russia's oligarchs -- the
handful of men who control some 80 percent of the Russian
economy, were crippled by the Russian financial collapse of
August 1998. Halfhearted efforts to restructure the banks have
proceeded slowly since then, with the oligarchs scheming for
bailouts and scrambling to protect their personal fortunes. This
alone would justify revoking the licenses of far more than just
these four banks and the previously shuttered Inkombank, Menatep,
Tokobank, and Unikombank. However, considering the personalities
behind several of these banks, there may be more to the closures
than economic pragmatism or posturing for the IMF.
Uneximbank was the flagship of business tycoon Vladimir Potanin.
Potanin built his fortune in part through his friendship with
former Prime Minister Yegor Gaidar and in part through the 1995
"loans for shares" scheme, which he is believed to have
originated. That scheme, under which Russia's bankers loaned the
government money they never expected back in return for
undervalued shares in key privatized industries, as well as the
support they gave President Boris Yeltsin in his 1996 reelection
campaign, gave Potanin and his fellow oligarchs effective control
of Russia's economy and tremendous influence over Russian
politics. Potanin was made Deputy Prime Minister for a time, and
fellow oligarch Boris Berezovsky was first made secretary of
Yeltsin's Security Council and then made head of the Commonwealth
of Independent States (CIS). Berezovsky, closest to Yeltsin, was
reputedly responsible for the sacking of Russia's last three
prime ministers.
The oligarchs' brazen political and financial maneuvering won
them enemies among reformers, nationalists, and communists alike.
Still, operating in concert and secure in their control of
Yeltsin and Viktor Chernomyrdin, himself counted among the
oligarchs, Russia's oligarchs were largely untouchable. That
status eroded first in 1997 when the oligarchs turned against
each other in competition for Svyazinvest telecom, which Potanin
eventually won, and collapsed almost entirely along with the
Russian economy. When Yeltsin failed to win support for
Chernomyrdin's second tour as prime minister, his new appointee
Yevgeny Primakov turned against the oligarchs, particularly
Berezovsky. Berezovsky was ousted from his CIS post and faced an
arrest warrant for alleged financial improprieties at the Russian
airline Aeroflot. An arrest warrant was also issued for oligarch
Alexander Smolensky, perhaps the most battered by the economic
collapse, and Smolensky's SBS-Agro bank was effectively taken
over by the Central Bank. Since then, Menatep bank, controlled
by oligarch Mikhail Khodorkovsky, and Vladimir Vinogradov's
Inkombank had their licenses pulled.
The closure of at least two of these four banks -- Uneximbank
and Promstroibank, which is controlled by Gazprom mogul and
Chernomyrdin ally Rhem Viakhirev -- could be yet another shot
fired against Russia's faltering oligarchs by their foes.
Gerashchenko was, after all, put in place by Primakov. However,
it is interesting that Berezovsky's banking interests were left
unmolested. This raises another possibility -- that the bank
closures reflect infighting among the oligarchs. This would not
be so much a power struggle as a scramble for survival. It is
clear to everyone involved that Russia's Westernizing experiment
is in its last days. Those who profited the most from it know
they are the first against the wall when the revolution comes,
unless they can position themselves for what comes next. If that
means feeding each other to the communists, nationalists, and
even to the last miserable apostles of the West, so be it.
Along those lines, it is interesting to note the apparent target
of the Mosbiznesbank closure -- Moscow Mayor Yuri Luzhkov.
Mosbiznisbank is controlled by the Moscow government, which may
be held responsible for the bank's some $300 million debt.
Luzhkov, one of the leading candidates for Russia's upcoming
presidential elections, is a bitter foe of Berezovsky. Luzhkov's
presidential bid would no doubt be crippled by the untimely
bankruptcy of the Moscow government.
In the end, the move could be largely meaningless -- less a
reflection of economic and political strategy than a show put on
for the IMF. The oligarchs could even have given the move a
silent nod, hoping to dodge some bad debt while appearing to be
the targets of fiscal reform. Much of Mosbiznesbank had
allegedly already been absorbed by the Bank of Moscow, and
Uneximbank was likewise allegedly little more than an empty
facade, its operations having been absorbed by the Potanin-
controlled Rosbank. Moreover, Promstroibank had reached an
agreement with the Russian bank restructuring agency ARKO for a
3.1 billion ruble bailout in return for 75 percent plus one share
of Promstroibank only hours before having its license pulled.
Finally, the decision to suspend Mexhkombank's license is odd,
and appears unrelated to the politics of the other three banks,
as it was not part of an oligarch's empire and had even reached a
relatively fair and open restructuring deal with foreign
creditors and shareholders only a week earlier. In fact, the
Central Bank's decision to sacrifice Mezhkombank and its foreign
investors and creditors for the IMF tranche may have been an
intentionally ironic jab at the international financial
community.
Reactionaries against oligarchs, oligarchs against each other, or
merely a charade, Russia's banking sector purge is a reflection
of the end of Moscow's dalliance with the West. Russian airborne
troops racing into Pristina and Bear bombers heading for Iceland
is a taste of Moscow's emerging relationship with the West.
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