Author: Kim Iskyan

POOR DUE DILIGENCE SPARKS CONCERN FOR BANKING SECTOR

By Kim Iskyan

In early July the Russian Central Bank said it would spend $14 billion to bail out the Bank of Moscow—until recently Russia’s fifth-largest bank.

300_regulars_em_roundup_1

Bank of Moscow gets $14 billion government bailout

The support package, the Russian banking sector’s largest ever, came just months after state-controlled bank VTB took it over.

Former Moscow mayor Yuri Luzhkov, removed from his post last year, reportedly used the bank to funnel funds to preferred projects.

Problems at the Bank of Moscow escaped notice by VTB during pre-deal due diligence, and by Central Bank regulators, raising questions about problems lurking elsewhere in the banking sector.

In a signal of the growing tension over whether Prime Minister Vladimir Putin or President Dmitry Medvedev will stand for president next year, two of the president’s closest advisers publicly called on him to formally announce his candidacy.

Relations between Russia and the US—which were improving—may worsen as Medvedev said that his government would compile a list of American nationals who would not be granted Russian entry visas. The move came after the US barred about 60 Russian officials involved in the 2009 jailhouse death of hedge fund lawyer Sergei Magnitsky.

Gas company Gazprom will combine its power assets with those of IES Holding, owned by Russian investor Viktor Vekselberg, in an $8.8 billion deal. The combined group will control a quarter of the country’s total electricity generation capacity and increases state ownership within the sector.

In mid-July, President Medvedev gave approval to a plan to more than double the size of Moscow. The timetable and project funding sources have not been specified.