Yugra’s crash: Simple fraud or war for oil? 

Yugra’s crash: Simple fraud or war for oil?
Yugra's crash was the largest in the banking history of Russia Photo: The CrimeRussia

During the last two months, the attention of the banking community has been focused on the conflict between the Central Bank of Russia and the Yugra Bank. It would seem as nothing unusual – banks collapse every month. However, the case of Yugra is strikingly different from other similar ones; instead of submitting to the will of the regulator, the management of the credit organization decided to openly clash with the Central Bank. Details of the 'banking war' are in the material of the CrimeRussia.

In order to understand the situation in full, one must know about the owners of Yugra, businessmen Yury Khotin and his son Aleksey.

Хотины ведут настолько скрытный образ жизни, что это единственные их фотографии, которые есть в интернете

These are the only pictures of Yury and Aleksey Khotin available in the public domain due to their secretive lifestyle

The Khotins are of Belarusian decent; they started a steel business after Alexander Lukashenko came to power, in 1994. Their first company was the Belarusian producer of cosmetics and perfumery called Belkosmex. Already in 1997, the father and son moved to Moscow, where they rented premises from the meat factory Mikoms, which they later bought for a very cheap price. By 2004, Yury and Aleksey Khotin already owned about 1 million square meters in Moscow.

According to some reports, this family business was actively supported by Belarusian officials and security officials, who, like entrepreneurs, moved to Russia. Other sources say that Khotin’s patron is Lukashenko himself.

По некоторым данным, одним из бенефициаров бизнеса Хотиных может быть президент Белоруссии Александр Лукашенко

According to some reports, Lukashenko himself is the patron of Khotins' business

The Khotins are one of the largest Russian businessmen: in 2016, they were ranked 8 in the Forbes rating "Kings of Russian Real Estate." According to the estimates of the publication, last year their income from renting 2 million square meters in the Russian capital brought them about $325 million. Their assets include the following real estate items: Moscow Hotel, Gorbushkin Dvor, shopping centers Filion and Modnaya Galereya (Fashion Gallery). In addition, the entrepreneurs have shares in the oil business, the companies Exillon Energy and NK Dulisma.

The Khotins’ business sometimes is called a 'crypto-empire' for absolutely closed model of management; there is no single center and any interaction with the press or other external structures. Officially, none of the companies belong to them; the entrepreneurs carry out control through third parties. According to experts, this management model says that the Khotins have powerful connections in the special services environment.

Some media write about the Khotins’ connection with former FSB head Nikolay Patrushev and ex-speaker of the State Duma Boris Gryzlov.

По информации СМИ, покровительство Хотиным оказывали экс-спикер Госдумы Борис Грызлов и бывший глава ФСБ Николай Патрушев

According to media reports, the Khotins were patronized by ex-Duma speaker Boris Gryzlov and former FSB Chief Nikolay Patrushev

It is noteworthy that they acquired almost all of their assets for huge loans taken from top banks, including Sberbank, VTB, Alfa Bank.

The entrepreneurs purchased Yugra in 2012. According to some reports, the main purpose of the deal was to lend to their own oil business. Many experts noted that after the Khotins took over Yugra, the bank began to follow the so-called 'vacuum cleaner strategy,' that is, to attract huge funds of individuals through high deposit rates. The fact that the Khotins have something to do with Yugra, transpired only in 2016, when the Central Bank Chairman Elvira Nabiullina demanded, as an ultimatum, to disclose the main beneficiaries of the bank.

Leader by losses

Prior to all the current events, Yugra was ranked 33 in terms of assets (247 billion rubles = $4.29 billion, according to Interfax-100) and 12 in terms of retail deposits (170 billion rubles = $2.95 billion).

Yugra’s problems began a year ago. The Bank of Russia had questions to the credit institution due to the deterioration of the liquidity situation and payments to customers, and, in April 2016, the regulator set limits on the Central Bank deposits.

According to the Central Bank's report for the last year, the bank became the leader in losses − 32.2 billion rubles ($560.2 million). The Central Bank claimed the reason for this was the reserves that the credit organization created since the end of the first quarter. By early 2017, Yugra had saved 29 billion rubles ($504.5 million) for possible losses.

On July 10, 2017, the regulator introduced a temporary administration in Yugra represented by the Deposit Insurance Agency (DIA). As a result of the inspections, the Central Bank revealed signs of unreliable reporting, operations for the withdrawal of funds and assets, as well as violations of regulations and restrictions of the Bank of Russia. In addition, the auditors discovered signs of fraud with deposits, namely off-balance sheet deposits, attracting new investors as shareholders in the presence of an effective ban on deposits from the regulator.

In addition, according to the conclusion of the Central Bank, the main activity of Yugra was to lend to the business projects of the credit institution’s owners. As stated in the Central Bank’s press release, in the year 2017 the regulator "informed the General Prosecutor's Office of the Russian Federation about the facts of the withdrawal of assets by the credit institution six times and twice – Federal Service for Financial Monitoring about the bank's implementation of dubious transit operations."

Many experts wonder why the Central Bank took its time with the decisive measures against Yugra. According to some sources, this is due to the presence of a powerful administrative resource among the owners. 

Unprecedented case   

Soon after the introduction of the temporary administration, really strange things began to happen. Already on July 11, just one day after the administration was introduced, the DIA announced the beginning of payment to Yugra’s depositors on July 20. The planned compensation of damage was to become the largest insurance event in the history of the banking sector: its volume exceeded 170 billion rubles. It is unclear what this hurriedness in payments was related to, especially before the license was revoked.

An extraordinary event took place on July 19: the Prosecutor General's Office for the first time in the history of the Russian Federation protested the decision of the Central Bank to introduce a temporary administration to Yugra Bank and a three-month moratorium on meeting the claims of the bank's creditors. The representative of the supervisory agency also noted that such large-scale and urgent payments would strike the federal budget, as well as reduce the availability of loans to small and medium-sized businesses and in general worsen the investment climate of the country. In short, the Prosecutor General's Office did not find any justification for changing the management in Yugra. In this regard, the security agencies strongly recommended that the Central Bank and the DIA postpone payments to the bank’s depositors. The Prosecutor General's Office backed up its 'wishes' with a promise to consider the issue of prosecuting the DIA management in case of continuing actions to return the funds.

Only a day later, the parade of incredible events continued. On July 19, after the protest of the Prosecutor General's Office, the Central Bank and the DIA postponed their payment plans. However, according to the announcement of the Chairman of the Executive Board of VTB 24, Mikhail Zadornov, the same evening the regulator negotiated with the agent banks until midnight. The result of the negotiations was the decision to ignore the supervisory authority and to return the depositors’ money. As a result, by 11 AM VTB 24 has satisfied the requests of almost 4 thousand clients of Yugra paying them about 4 billion rubles ($69.5 million) in total. According to media reports, after such risky actions, the representatives of the provisional administration were summoned to the Prosecutor General's Office. The results of their conversations remained unknown.

Председатель правления банка «ВТБ 24» Михаил Задорнов

VTB 24 Chairman of the Board Mikhail Zadornov

Fight to the end

Owners and top managers of Yugra adamantly deny the charges brought against them. They intend to return their license, for which they filed a lawsuit in the Moscow Commercial Court. The representative of Yugra’s shareholders, Anatoly Vereshchagin, actively does interviews, where he tells about his vision of the situation. According to him, there were no grounds for revoking the Central Bank to revoke the license, since the bank complied with all the regulator's requirements, including the one to create additional reserves just 17 hours before the license was revoked. Vereshchagin stressed that until the last moment the management of the bank did not want to get tough with the regulator and insisted on solving problems without "wash their dirty linen in public." In addition, according to the Yugra’s representative, the value of many assets was intentionally understated by the DIA during the revaluation. As an example, Vereshchagin cited the main office of Yugra located in the center of Moscow near the metro station Kitai-Gorod, right opposite the building of the Presidential Administration. The market value of a square meter in this office is 700 thousand rubles ($12.1 thousand), and according to the estimate of the temporary administration, it is only about 200 thousand rubles ($3.4 thousand). Also, the representative of the bank’s shareholders reminded that, according to the legislation, in the event of the bank's closure, the depositor receives an amount not exceeding 1.4 million rubles ($24.3 thousand). Thus, more than 30 thousand customers of the bank, who had deposits amounting to more than that figure, lost their money. Vereshchagin estimates the total damage from the actions of the Central Bank of 15 billion rubles.

Представитель акционеров «Югры» Анатолий Верещагин отрицает все обвинения ЦБ

Representative of Yugra’s shareholders Anatoly Vereshchagin denies all charges of the Central Bank

On August 15, a court session took place, at which Yugra’s representatives demanded that the Prosecutor General's Office should be participating in the case as a third party, and also asked for the rescue plan developed by the Central Bank and the Deposit Insurance Agency (DIA). Employees of the credit organization expressed concerns that in fact the regulator did not come up with any adequate strategy aimed at improving the situation in Yugra. Unfortunately for the bank's employees, the court rejected both petitions. On October 27, the consideration of the Central Bank's statement on the recognition of Yugra as bankrupt was scheduled.

A marathon of amazing events is completed by the fact that Saudi Prince Al-Walid ibn Talal Al Saud, who is the largest shareholder of Citigroup (more than 6% of shares), wished to join the founders of Yugra. Al-Walid ibn Talal ranks 22 in the list of the richest people in the world. Time magazine gave him the nickname "Arabian Warren Buffett." Forbes estimates Al-Valid Bin Talal's fortune at $17.7 billion. He owns stakes in Lyft, Twitter, Citigroup, the Four Seasons Hotels & Resorts, hotels George V in Paris and Savoy in London.

По заявлению Алексея Хотина, саудовский принц аль-Валид намерен вложить свои средства в банк «Югра»

According to Aleksey Khotin, Saudi Prince Al-Walid intends to invest his funds in Yugra

Oil monopolist

There is a version that the collapse of Yugra is only a small part of the big plan to consolidate the country's oil assets in one hands, the ones of Igor Sechin. This version can explain both the collapse of Yugra, and the serious problems that has the bank Otkrytiye.

On August 23, it transpired that Rosneft delivered a fatal blow to AFK Sistema: the company, which lost Bashneft, is obliged to pay the state corporations more than 136 billion rubles. The Khotins’ and Vagit Alekperov’s assets  could be the next on the waiting list to join the oil giant. The matter is that the Khotins’ oil business was financed by Yugra, and the largest client of Otkrytiye is Alekperov’s Lukoil. Perhaps, by destroying the sponsoring banks, Rosneft expects to cheaply buy the assets that lack the necessary financial support. If one follows this version, he can understand many oddities in the case of Yugra: the refusal of the Central Bank to conduct any negotiations with the bank, such quick decisions regarding payments to depositors, as well as unprecedented ignoring the protests of the Prosecutor General's Office. After all, the claims of influential people can be ignored only when there are even more influential people behind your back.   

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