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The situation with PrivatBank nationalized enters the home stretch. Judicial "home stretch". The London Royal Court will have to decide on bank's claim to its former owners. The materials gathered by the Kroll detective agency testify that the bank has incurred $ 5.5 billion losses over the 10 years (before its nationalization in December 2016). At the time of the judicial investigation, the assets of the former beneficiaries of the bank for more than $ 2 billion were arrested by the court decision.
The situation with PrivatBank resembles a story with the nationalization of Kazakhstan's largest "BTA Bank". Its former owner, Mukhtar Ablyazov, was included in the close circle of Kazakhstan’s president Nursultan Nazarbayev, but then suddenly decided to enter political game field and created his own political project. As a result, the Kazakh oligarch was forced to run away, his property was arrested and partially confiscated, his BTA Bank, which was owned by him in 2009, was confiscated too. At that time, significant liabilities were formed on the balance sheet of the bank: only the debt on external loans amounted to $ 10 billion. The prosecutor's office of Kazakhstan accused the owners and management of the bank of withdrawing of $ 6 billion with the help of the backing firms. As a result of an internal investigation, 12 bank officials have got from 2 up to 8 years imprisonment, and Ablyazov was declared an wanted.
According to Forbes Kazakhstan, the state spent more than $ 10 billion on rescuing the bank. Some sources claim that $ 2 billion went on legal services, international searches, and lobbying. In total, this bank has lost at least $ 9 billion. In order to save $ 9 billion, they have spent has from $ 10 billion to $ 14 billion, and the balance of this operation turned was negative for the state.
This example is very instructive for Ukraine. The main argument of PrivatBank privatization was that this bank was keeping more than 5,5 billion USD of people’s deposits and had millions of customers, and if it went bankrupt, the country would face a major financial catastrophe. The practice of nationalizing banks in corrupt countries (with an opaque system of government) shows that this procedure is much more expensive than paying obligations of the bank to depositors.
Kroll detectives have disclosed the financial model of the withdrawing funs of PrivatBank depositors, and this money was distributed among specially created companies, which through cross-financing repayed old loans and took new ones, some of which went to the offshore accounts of final beneficiaries of the bank. But this scheme has yet to be defended in the London court.
This simple graph depicts the most ingenious financial scheme in the history of modern Ukraine! On the eve of nationalization (as of October 1, 2016), on the balance of PrivatBank, the customer’s loan portfolio was $ 6,4 billion, for which $ 0,7 billion reserves were formed. In a year after nationalization, the balance sheet indicators of the bank have changed significantly. Its loan customers portfolio was reduced to $ 1,7 billion, but the size of reserves grew to $ 6,8 billion. The size of the formed reserves has already exceeded the volume of the loan portfolio, which indicates either that after the nationalization bank has preserved the risk credit policy, or the reserves for off-balance sheet assets / liabilities were formed (for example, obligations to the Crimean depositors or proprietors of its Eurobonds). And it is quite possible that in one or two years, the total amount of losses covered by the state at the expense of the amount of pre-capitalization would significantly exceed the size of the deposits that PrivatBank had to return to depositors at the time of nationalization ($ 5,3 billion). The example of BTA Bank is very important here. What could the state do with these loans in the future?
- Traditional way. The balance of reserves could be written off at the expense. Yes, and this is quite possible.
- The bank could sell it at a discount of the "market" financial company. The discount might reach some 97%.
- The bank could sign a so-called "peace agreement" with its borrowers and make them pay a fair price. What is the fair price now? That's right, $ 1,7 billion.
The whole brilliance of the scheme is to "reduce" the loan portfolio of the bank more than three times and write off the received loss from the formed reserves due to the amount of capitalization received from the state by using the standard calculations of fair value.
The efforts of our financial experts were practically implemented by the well-known "Schrödinger’s cat" mental experiment. One Ukrainian minister once said that every Ukrainian will pay for the nationalization of PrivatBank either $ 140 or $ 180. Do not believe him. No more than 12 million people pay income taxes in Ukraine. In order to cover the financial black of PrivatBank, each of them will pay more than $ 430.
NBU officials poorly identified those associated with the bank, because the affiliated links were confirmed by just printscreens from public websites. That is why a number of court hearings were lost. For example, the NBU lost its lawsuit with the Surkis family that managed to turn back its UAH 1.05 billion ($36 million), $ 266,2 thousand, and 7.8 thousand euro. These funds were converted into bank capital, as the NBU claimed that Surkis was connected with the Privat group through 1 + 1, Gravis-Kino, and TET.
More than $36 million is the real assessment of the quality of work of the NBU employees who receive the largest salaries in their sector.
Another high price for all of us will be determined after judicial review of the suit of Eurobonds holdersб issued by Privatbank in the previous years. This is about $ 375 million. These obligations were "zeroed" solely on formal grounds. Most Ukrainian banks and enterprises have issued Eurobonds with the help of specially created subsidiaries - SPV. Special purpose vehicle (SPV) is created for a particular business task and financial flow management. In this case, it was created for Eurobonds issuing under the brand of Privatbank. Formally, this SPV is bank’s associate.
But this does not give the state the right to violate the rights of private investors who have conscientiously purchased PrivatBank’ss bonds in the open market. As court proceedings have shown, the London court would most likely take their side. Although, bondholders choose a more aggressive form of pressure on the state. Madison Pacific Trust Limited (Hong Kong)would become a new trustee of Eurobond issuance, replacing Deutsche Trustee Company Limited (UK). Madison Pacific Trust Limited has already announced that it will require the early repayment of two bonds ( $ 375 million). If the company fails to follow this requirement, the bank might face the default procedure and its foreign assets would be blocked. In the future, the security claims of creditors may extend to the state as the sole proprietor.
375 million dollars is our price number two.
At present, the London court considers a lawsuit of PrivatBank to its former owners. The fact that the court ruled to arrest their assets does not mean anything: it is a usual security measure to protect the plaintiff's property claims. Let us hope that the lawyers of PrivakBank and the NBU will be able to convince London judges that for ten years there were robberies from the largest bank of the country, while neither prudential supervision of the NBU, which had the full information, nor law enforcement agencies did not stop it. In addition, the London judges will have to convince them to bring the indictment verdict against the background of the complete absence of investigations in Ukraine and judicial decisions on punishing the perpetrators, including the bank's executives and the functionaries of the NBU. This task is really difficult because in case of a loss, the former owners can file a counter-claim for the illegal deprivation of their property, and the amount of claims will amount to approximately 1 billion dollars.
But the most unpleasant thing is that during the trial period all possible transactions for the sale of the bank to new private investors, as well as plans for its merger with other state-owned banks, might be blocked. Moreover, they might be blocked for long years. So, the state will be forced to carry this "suitcase without a handle" for several years, feeding this "black hole" with tens of billions of hryvnias. And this is probably the most important "price tag" for the nationalization.