You're reading: Ex-CEO: Bank of Moscow bailout saved VTB

MOSCOW, Aug 30 (Reuters) - The former head of Bank of Moscow has denied defrauding Russia's fifth-largest bank, saying the $14 billion bailout it received was in reality intended to save its suitor, state-controlled VTB .

Andrey Borodin dismissed allegations by VTB and the Russian authorities that he improperly lent billions of dollars to firms he controlled — loans that went bad after he was ousted, forcing the central bank to launch the record rescue last month.

Borodin, who fled Russia at the end of March and is wanted by a Moscow court on an international warrant, told Reuters that VTB had sought to depict Bank of Moscow’s financial condition in the worst possible light to conceal its own balance-sheet woes.

"They (the authorities) cannot have something substantial because there is nothing," Borodin, 44, told Reuters in an interview granted last week on condition that his whereabouts not be disclosed.

"VTB was and is spreading rumours about the bad financial condition at Bank of Moscow and an undisclosed portion of loans which are ‘problematic’," he said. VTB rejected the allegations.

The fallout from VTB’s hostile bid for Bank of Moscow has raised questions over how politicised strategy and oversight are at Russia’s dominant state banks. Top banking regulator Gennady Melikyan has resigned over the affair.

VTB, Russia’s No.2 bank, in February acquired a 46.5 percent stake in Bank of Moscow and a further indirect minority stake for 103 billion roubles ($3.6 billion) from the City of Moscow.

But CEO Andrei Kostin was not able to install his own management team at Bank of Moscow until mid-April, after Borodin had sold his 20.3 percent stake in the bank to Kremlin-connected businessman Vitaly Yusufov for $800 million.

Borodin defended a $1.1 billion loan he granted to Yusufov while still CEO, saying it was well secured against the tycoon’s assets, which include a German shipyard.

He added it was likely that Yusufov, son of former Energy Minister and Kremlin aide Igor Yusufov, would sell the stake at a higher price to VTB, which must consolidate 75 percent control over Bank of Moscow to unlock the bailout.

WANTED

Borodin is wanted in Russia over an investigation into a $440 million loan to a firm called Premier Estate, whose proceeds landed on the personal account of Yelena Baturina, the property-developer wife of former Moscow Mayor Yuri Luzhkov, investigators say.

Borodin said, however, that all lending by Bank of Moscow to Baturina’s Inteko group, was transparent and well secured. Luzhkov was fired last year by President Dmitry Medvedev after 18 years in office. Baturina has denied any wrongdoing.

Borodin also dismissed a central bank audit of Bank of Moscow, conducted after he was ousted, that found $7.5 billion in loans to businesses believed to be controlled by management, with a further $5.1 billion channelled into offshore schemes to cover interest payments on the loans.

The Kommersant daily reported on Monday, quoting sources, that the Interior Ministry would revise up estimated losses on Bank of Moscow loans totally lacking any security by 100 times to $6 billion.

A spokeswoman confirmed that ministry investigators were reviewing the scale of estimated losses but said it was too early to give a figure.

GOING BAD

Borodin, who spoke before the Kommersant report and has not yet faced charges, denied the loans were bad.

"All of these loans were granted according to corporate policy," he said.

"It’s inexplicable how these loans got bad in one day. Five central bank representatives have been at the bank every day; they oversaw all transactions and loans.

"VTB and the new management of Bank of Moscow are interested in presenting the situation at Bank of Moscow as badly as possible."

VTB rejected Borodin’s allegations, saying that half of Bank of Moscow’s loan book had been found to be bad by investigators and independent auditors.

"Russian state regulators confirmed that fraudulent lending activities of the previous management in 2010 and earlier have resulted in the need for provisioning of the loan portfolio against potential losses," VTB said in a statement to Reuters.

Borodin defended the bank’s practice of lending to firms, such as forestry company Investlesprom, in which management had an interest, saying this was necessary to ensure loans were recovered in Russia’s uncertain legal environment.

He said Bank of Moscow had been sound before VTB assumed control, which is why he had offered on March 23 to buy out VTB’s stake, only to leave the country under official pressure two days later.

Borodin’s offer "was a sure sign that I was confident in the security of the asset and the future of Bank of Moscow. VTB said no, which was a clear sign that they did like this asset.

"They could have walked away. They did not." ($1 = 28.955 Russian Roubles)