Trust Bank new leadership claimed predecessors siphoned off money through offshores
They claimed that the bank has constantly been on the brink of bankruptcy. Former owners of the bank argued that this was done to save customers.
The special administrator of the Trust Bank, the Otkritie financial corporation, plans to charge 830 million dollars from the bank's former shareholders — Ilya Yurov, Nikolay Fetisov, Sergey Belyaev and their wives. According to Vedomosti, Otkritie believes that this amount of money was siphoned off by the former team through offshores.
As a reminder, in late 2014, the Central Bank decided to sanitize the Trust Bank. The bank, which had more than 144 billion rubles of private investment on its balance, failed to cope with the outflow of deposits worth 3 billion rubles. Some 30 billion rubles had been intended for the recovery of Trust, but later the Central Bank admitted that those funds would not be enough. At that time, the Deposit Insurance Agency made a commitment to provide the bank with a loan of 99 billion rubles, and additional 28 billion for the special administrator, the Otkritie financial corporation, to maintain the bank’s assets liquidity. However, the additional financial inspection revealed that Trust’s real debt was 114 billion rubles. In December 2014, it amounted to 45% of total assets.
As suggested by a member of the Board of the Otkritie Holding, Dmitry Popkov, Trust had soft assets since its establishment in the mid-2000s, when the Menatep St. Petersburg Bank and Trust Investment Bank merged. Menatep St. Petersburg had already been unprofitable, when the Yukos shareholders (Menatep was Khodorkovsky’s structure) had taken about 300 million USD from it, before it was acquired by future owners of the Trust Bank. Moreover, the future basis for Trust — both Menatep St. Petersburg and Trust Investment Bank — were acquired for 100 million USD, borrowed from the same banks. Which means that the buyers owed to themselves and, as Popkov claims, did not return the money to the legal successor of the two banks, the Trust Bank. As a result, its debt grew to 220 million USD.
Later shareholders repeatedly borrowed money from Trust, for instance, in 2007, to buy back shares in the banks from another shareholder, Oleg Kolyada. This money was also left hanging as debt. By that time, the overall debt rose to 300 million USD, according to the current managers.
The position of the bank deteriorated sharply in 2008, during the global financial crisis. Fitch Ratings noted the great level of non-performing loans, reduction in lending, and its low quality. In 2010, Fitch even suggested the possibility of a bank default. However, later the agency raised its rating.
Popkov believes that the bank started to cover the hole by debt service through attracting new deposits. At the same time, soft loans were not reflected in the bank reports, as they were passed on for management to the offshore companies. The judge of the court of London, where Otkritie’s lawsuit against Trust is examined, Stephen Martin Malz, called Trust "an ordinary pyramid with a beautiful name." In February 2016, the assets of Yurov and his partners were arrested.
Defending himself, Yurov claims that the bank had no other choice. Otherwise, they would have had to either run debtors into bankruptcy or lose the license due to poor performance of the credit institution. However, he argues that the offshore scheme was not used for falsifying statements. Nevertheless, the new bank management estimates the damage from such manipulations at minimum of 830 million dollars. This is the sum that would cover the difference between the obligations of 18 companies (owned by former beneficiaries) to the Trust Bank and its assets and mortgages. In total, according to the bank's new administration, the former owners had around 300 companies, most of which were located in the offshores. By the early part of the bank resolution, some of them were able to withdraw about 90 billion rubles from Trust through loans, securities, and receivables, while the cost of those assets did not exceed 20 billion.
Yurov refutes this information as well, stating that he personally owned only 5 companies, and the rest were on the balance sheet of the bank itself. He claims that the bank-affiliated companies accounted for about 46 billion rubles of credit by December 2014, and the companies controlled by the beneficiaries — for some 5 billion.
At the same time, the new management of the Trust Bank believes that the debt was also growing due to a peculiar method of lending used by the former administrators. An issued loan was recorded for a large amount than the one received by the borrower. For example, the Yaposha restaurant chain has a debt of more than 5 billion rubles before Trust, while the real debt, as a current representative of the bank said, amounts to only 1 billion, while the remaining money was siphoned off through the offshores. The Stroyecologia Company was granted 80 million USD (5 billion rubles), but the documentary evidence was provided only for 700 million rubles. The rest of the money is currently sought. And these are only two examples of inconsistencies found in reports.
In addition, the interim administration of the Trust Bank found an 18-billion-falsification with individual loans. Bank forgave the debts of more than 100 thousand people by restructuring them. However, in the statements, these loans were mentioned as active and the interest from them was reflected in the bank's earnings. Yurov argues that this way the bank simply wanted to help people.
External conditions also were not in favor of the bank’s development. Firstly, the Trust Bank failed to enter the list of 18 lucky ones, who were provided financial assistance from the government worth 900 billion rubles in 2008-2009. Second, in 2008, part of the Yukos shares held in the bank accounts were arrested as the property of Mikhail Khodorkovsky, attributing to the decline in the bank’s investment prospects.
The bank’s projected growth for 2014 showed that if negative trends in the economy remained, the loss of the Trust Bank would reach 30 billion rubles per year. At that time, the bank’s beneficiaries, seeing no way of rescuing the bank, started looking for a buyer. By the summer of the same year, a preliminary agreement was reached with Rosneft for the sale of the bank at a symbolic price of 1 USD. The owners were ready for that, because otherwise their organization faced bankruptcy or reorganization, and thus inevitable accusations of mismanagement. In the end, it still happened. However, the deal with Rosneft was not meant to be for reasons unknown.
New bank executives also failed to agree with the previous shareholders. In May 2015, representatives of the Trust Bank met on Cyprus with Yurov and the manager of the offshore network of Trust’s former owners, Ben Worsley. Initially, during the negotiations, offshore companies promised to recognize their debt and to at least partially repay it. Subsequently, however, the parties began to present a variety of claims to each other, delaying the case.
In testimony to the London Court, Yurov claimed that the Otkritie main owner Vadim Belyaev promised him 50 million USD for the bank. Belyaev denied that. In turn, Yurov considered Trust’s agreement with Worsley for help in the transfer of offshore companies or the cession of rights to their assets to Trust an attempt to steal property. He sent an appropriate complaint to the Russian Investigative Committee, asking to protect his rights as a beneficiary of the Willow River and RCP offshore companies. In turn, the Trust Bank states that they did not run these companies and did not register their shares on themselves, only challenged the additional contracts for the loans of these companies in court. The court eventually cancelled these contracts. However, Worsley acknowledged the bank claims against debtors as fair. In April 2016, by the decision of the Cypriot court, interim management was appointed for Willow River and RCP. The companies, as Trust claims, are in a state of default.
Initially, the defendants in the case had been charged with embezzlement through swindling in the amount of 225 million rubles ($3.3 million). In the final version of the indictment, the article was changed to 1.5-billion-ruble ($22.45 million) embezzlement.