Latest Bank Bail-Out Has Central Banks Around the World on Edge

Many assume the next round of bank bail-outs will start outside the United States first, then end here as the US will have the last banks standing. Today, reports are coming in of another global sovereign bank bail-out, and it is not in Italy or Spain

From Zero Hedge

It’s been a while since the world had any bank solvency concerns; in fact, ever since the thrice botched bail out of Monte Paschi and the debacle that was Banco Popular, it has been largely smooth sailing. That changed moments ago, when the Russian central bank announced on Tuesday afternoon it has bailed out Otkritie Bank, which according to Interfax, “ranks 1st among privately-owned banks and 4th by assets among banking groups in Russia.”

Otkritie Bank’s clients include (as of 2016), 29,000 corporations 163,000 SMEs and 3.4 million individuals, including high net worth individuals. The Bank has 400 offices across Russia.

From Reuters:

  • RUSSIA’S C.BANK SAYS HAS DECIDED TO BAIL OUT OTKRITIE BANK, ONE OF THE COUNTRY’S LARGEST PRIVATE LENDERS – Reuters – 10:00 AM Eastern Daylight Time Aug 29, 2017
  • RUSSIA’S C.BANK SAYS TO BECOME SHAREHOLDER IN OTKRITIE BANK
  • RUSSIA’S C.BANK SAYS WILL NOT USE BAIL IN SYSTEM
  • RUSSIA’S C.BANK SAYS OTKRITIE BUSINESSES TO CONTINUE OPERATING AS USUAL

Otkritie’s current owners include the Czech PPF Group (29.9%) owned by Petr Kellner, the Slovak businessman Roman Korbacka (20%), and the Russian ICT Group (50.1%) of which Alexander Nesis is President. Or  rather included, as following the bailout, all of their stakes will be substantially diluted if not wiped out. The bank’s current owners and executives are said to cooperate with the regulator.

As the central bank’s press release adds “the bank is a systemically important credit organization, it occupies the 8th place in terms of assets. The Bank’s infrastructure includes 22 branches and more than 400 internal structural subdivisions.”

And since we live in a world where bailouts are bullish, this happened:

  • DOLLAR BONDS OF RUSSIA’S OTKRITIE BANK RISE ACROSS THE CURVE AFTER CENTRAL BANK PLEDGES RESCUE, BOND MATURING APRIL 2019 UP 20 CENT

Otkritie Bank was featured prominently in a January FT article which laid out the previously unknown details of the late-2014 Rosneft bailout, in which Otkritie played a critical role:

 As 2014 drew to a close, Rosneft, Russia’s state-run oil company, faced a dire situation. Plummeting global oil prices, a rapidly devaluing rouble and western sanctions left the company with no obvious way to refinance the $18bn debt that was due to mature in just a few weeks.

 With little room to manoeuvre, Rosneft set in motion one of the most audacious trades in Russia’s short capitalist history — and nearly brought down the economy in the process. The company quietly issued Rbs625bn in bonds to an unnamed intermediary, which then used them as collateral to obtain reverse repo loans — deals to purchase securities with an agreement to sell them later at a higher price — from the Russian central bank. The intermediary then passed on the dollars to Rosneft, allowing it to raise short-term capital.

 Currency investors thought that Igor Sechin, Rosneft’s powerful chief executive, was effectively shorting the rouble and they pushed it to record lows. “The deal negatively stirred up the market,” tweeted Alexei Kudrin, the former finance minister. “Extremely bad timing.” Later, Vladimir Putin, Russia’s president, gave Mr Sechin a public dressing-down.

 The deal nevertheless showed that it was possible for Russia to circumvent western sanctions imposed over the Ukrainian conflict by turning to little-known private banks like Otkritie, which bought the Rosneft bonds — effectively making the companies special-purpose vehicles for Russia Inc.

In a nutshell the Russian central bank had used Otkritie as a funding SPV as it was exempt from the US sanctions at the time.

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