Andrey Kostin hides everything

VTB financial statements are made to hide the real state of affairs in the bank. That's why the rating agencies gave it low marks.
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In late February, VTB Board Chairman Andrey Kostin decided to speak again on this subject. It seems that this topic has become the bank's sore spot. On the sidelines of an investment forum in Sochi, he told reporters: "We are not satisfied with the methodology they use ... we have so many times complained about the rating agencies, on their politicized approach. ACRA offers, as we have seen with Gazprombank, rates below even international ratings." And later: "In our view, this is absolutely wrong. They do not take into account a number of factors." And: "Plus, they are very expensive. We advocate that there was some kind of a competing system. There shouldn't be a single agency in the country where all are forced to go."

Which rating was given to the bank, neither the bank nor the agency didn't say in early February. I made a request to the "Analytical credit rating agencies" (ACRA), but the response was silence. That is very strange. The agency is strongly criticized by the dissatisfied customers in the media, who say different accusation, trying to discredit the business reputation, and the agency does not even think to defend itself. This is very unprofessional.

However, what kind of rating the bank had, in principle, does not matter. Because this ranking may not be high by definition. I can only repeat everything that was expressed about VTB in several recent articles. After all, nothing has changed since.

Is it possible to find out the financial condition of VTB in its reporting?

I recently tried to find out the actual financial position of VTB. Alas, the "Bank reporting is cleaned from suspicious numbers to shine."

Now, from the statements of the bank once can not make a fair presentation of the financial position of the group. Those who preparie bank statements, are worthy of praise. This is an amazing example of how with a huge number of the figures it is impossible to understand what is happening in the bank.

I studied the statements for three quarters of 2016 according to Russian Accounting Standards (RAS) and International Financial Reporting System (IFRS). The first told me about the bank itself, and the second was consolidated for the entire group, including the bank itself. According to RAS, the assets and loan portfolio amounted to 9.342 trillion rubles and 6.338 trillion rubles, according to IFRS - to 12.359 trillion rubles and 8.708 trillion rubles. It is already clear that nothing can be compared at all.

The reporting under RAS has virtually no information on arrears. And that's a key factor that allows you at least a rough estimate of the real state of affairs in the bank. Alas, this is not possible under the Russian reporting. Mentioned in several places about some assets with payments delayed for over a year. But it is very fragmentary information, which does not give a full picture of the problems and their scope.

Some idea can be given by the amount of the created provisions for losses. Thus, the bank relating to the loans to legal entities established reserves in the amount of 4.2% of total loans, loans to individuals - 15.2%, on loans to banks - 0.2%, over the entire loan portfolio as a whole - 4.1%. But the idea of the problems will be very vague, as absolutely nothing is known about the relation between the value of overdue debt and reserves. Arrears (for reporting) in this case may be at 2% and 6%. It all depends on the degree of artistic talent of the bank accountants. But in reality, it can be expressed in general any single or even double digits.

In the IFRS reporting the information on arrears is a little better. Throughout the report a set of letters "Overdue" occurs only once. Where it occurs, it is said that "On September 30, 2016 the total amount of non-performing loans, which are defined as a group of impaired loans with a term of delay of more than 90 days amounted to 682.0 billion rubles, or 7.2% of the loan portfolio to customers, including "repo" pledged under, before provisions (on 31 December 2015: 635.4 billion rubles, or 6.3%)."

That's at least some certainty. But the certainty is imaginary. Yes, now we can compare this figure with the average temperature in the hospital, and find out that VTB has slightly more arrears than the average for the Russian banking system. VTB has 7,2%, while the average is 5.76%.

But in the report of the bank there is no additional information about the arrears. For example, there is no decryption of the credit portfolio quality categories (standard, substandard, doubtful, troubled, hopeless). With this decoding one can roughly estimate the minimum required amount of reserves for possible loan losses.

Unfortunately, even at the lowest bracket to calculate the volume of reserves for the reporting of the bank is impossible. Bank carefully hides this information. The bank also hides the information, what are the arrears in various areas of lending. The bank publishes helluva lot of numbers, the vast majority are absolutely useless, but carefully hides the important figures.

But even the published data can give some food for thought. Not very scary, actually. At least, if you operate the official figures. In a presentation to the reporting the arrears are more than 90 days (7.2%), and the figure on provision for impairment losses of loans is 7.5%.

Has the bank created lots of reserves or not? International rating agencies in such cases usually write diplomatically, that the volume of reserves is not high enough, or something similar. More precisely, so they wrote a few years ago. Since then much has changed. Standards of international rating agencies clearly become much softer in recent years, and the attitude to customers is much more flexible. Now (in October 2016) the reserve coverage of NPLs is only 86% (ie, reserves less known than bad credit) is considered by rating agencies as a good level. They sunk in frantic attempts to avoid losing a customer who may be angry because of the negative words of the agency, and to break a contract. How flexible was the conscience of the employees of rating agencies? And it's not just an uknown agency, but the most respected international three. What a disgrace. What should be expected from local, home-grown, aboriginal agencies? Note that before a good cover was at least 150%.

However, the rating agencies only follow their clients. "The dynamics of coverage of overdue debt reserves" on the average in the Russian banking system was negative in recent years. Before the crisis of 2008-2009 the average for the banking system, banks create reserves in 3 times more than the amount of overdue loans. During the crisis, this figure coverage ratio of the delay quickly dropped and stabilized at the level of 190-210% after the last crisis. In this figure began to fall again during the current crisis, but much slower. Now it is about 180%.

What if VTB generate reserves for possible loan losses for at least the average market level? As mentioned above, the impaired loans with a term of delay of more than 90 days at September 30, 2016 amounted to 682.0 billion rubles. Multiply this number by 1.8, and we have 1228 billion rubles. The difference is 546 billion rubles. Of course, if you increase the reserves, the capital will fall. And if capital falls, the next fall is the capital adequacy ratio. The bank argues that, in accordance with the provisions of the Basel Accord, its capital after deductions at 30 September 2016 amounted to 1 460.9 billion rubles; its assets, risk-weighted - 9 491 500 000 000 rubles, the capital adequacy ratio is 15.4%. That, at least, are the bank statements. Simple calculations give us a new capital adequacy average market value at the level of 9.5%. This is more than the minimum value of the Central Bank of 8%.

That is, VTB could well afford to reserve more. But does not do it. Why? Most likely, the bank is required to show a profit (albeit purely on paper), and to transfer part of the profit to the budget.

But the calculated new value of regulatory capital adequacy is more than the norm only if the numbers in VTB statements correspond to reality. The last few years clearly demonstrate to us that the statements of the overwhelming majority of Russian banks do not correspond to reality. But, unfortunately, it can be found only after the Central Bank withdraws the bank's license, and will introduce a temporary administration in it. Up to this point we can only guess to what extent the statements of a bank are falsified. It remains unclear in the case with VTB Bank. Moreover, in this case, it's absolutely incomprehensible. All possible clues to make at least a broad assessment have been removed by the bank. Can you believe this reporting? I would not.

VTB relationship with rating agencies

VTB relationship with rating agencies are very interesting.

On January 10, 2014 "Fitch downgraded the long-term issuer default ratings of VTB with the level of BBB to BBB- ". The explanation of actions taken was distinct and clear. For all but the management of the bank. The management actually was so much offended that on January 14 caused "all contracts of the banks of VTB group twith Fitch ratings" Deputy President - Chairman of the Board Herbert Moos said then that:. "The Russian Fitch ratings office took unprofessional attitude, assigning the rating of VTB group on the basis of assumptions that do not match reality," And. in the press release it stated: "VTB Bank - does not support the contractual relationship with the agency since 2012. Since then, the agency has no access to non-public information disclosed by other rating agencies, and does not have the necessary data for an objective assessment of the credit quality of VTB ".

In fact, non-professional position was taken by the bank itself. First, offended by the truth foolish. And for the second time recently he drew Stepan Demura. And this time is much more important than the first factor. If the first factor is purely emotional, then the second - legal. The bank said at the time that Fitch does not have access to classified information. But VTB - is a publicly traded company, and therefore, a "closed" information from investors he can not be by definition. Otherwise - it is a criminal offense.

It takes three years, and has another rating agency (ACRA) has decided to step on the same rake, putting its reputation above potential customer loss (and, consequently, loss of earnings). Resentment and vengeance management of the bank over the years, not a bit diminished. Now the bank is studying the desirability of maintaining their participation in the composition of the founders of ACRA. And once again he wants to give up the services of rating agencies, the good he has a choice. At the moment, in the register of credit rating agencies, in addition to ACRA, includes more and "Expert RA". That's up to him and is going to appeal VTB. The press service of the bank explained one media: "After studying the proposals, VTB has taken that which is more profitable for the bank It is a conscious decision to get a rating of one of the two CB accredited rating agencies receive two rankings would be economically justified..."

Another international rating agency (Standard & Poors) to make the right conclusions for your wallet immediately after the first case with Fitch. Now her explanation of rating actions taken in relation to VTB, read completely useless. There's no worthwhile information (see the article "Standard & Poors confirmed long-term and short-term ratings of VTB Bank at 'BB + / B').

Thus, the statements of VTB Bank is absolutely useless for those who want to form an opinion of their own financial stability and viability of the bank. Posts rating agencies or inaccessible to humans, "the street", or similarly useless. Which of all these conclusions can be drawn? The most logical following: VTB carefully tries to hide from the public a very big problem. The bank, in fact, is much less stable and viable than wants to appear. We can not exclude the fact that the problem, they become known to the public, could call into question the very existence of the bank. All this means that entities generally can not keep your money in the VTB (because the money legal entities are not insured by the state), and individuals can keep their money there within the insured sum in the amount of 1.4 million rubles. Better safe, as they say, God saves.

VTB privatization postponed indefinitely

VTB privatization postponed not for the first time. Far back centuries, I did not dig. To limit the 2016 year. At the beginning of the year, the government planned to sell 10.9% shares of the bank, which would reduce the state's share to 50%. The then Minister of Economic Development Minister Alexei Ulyukayev actively campaigned for privatization. On the Gaidar Forum in January 2016, he said: "[" Savings "and VTB] very high quality assets that are attractive throughout the world." At the same time, he argued that sanctions are not an obstacle to privatization. About the quality of VTB assets, we'll talk later.

However, in the summer of 2016 the first Deputy Prime Minister Igor Shuvalov said that the government has abandoned the idea of ​​selling the shares of VTB in 2016: "We thought that perhaps the deal for 2016, then consulted and decided that it was not the best time. VTB shares this year we will not offer. " Why do so - is not explained. Perhaps because the government somehow realized that the problems with the federal budget revenues last year did not catastrophic, and they can be dealt with by selling only "Bashneft" and "Rosneft". Or perhaps because the authorities realized that VTB in its real, not declared, a state of significant money not sell. Generally do not sell. Except for one dollar. This is at best. In the worst case, the buyer will require more and pay it once understand what he bought.

In early 2017 the question arose again VTB sale. Perhaps already by inertia. Because of this action the previous agitator (Ulyukayev) in power anymore. And need a special piece in the sale of VTB is also no. Crude oil is now more expensive than the budgeted $ 40, so the problems with filling the budget yet. So why sell?

Here Shuvalov and does not want to sell. At the forum in Davos in January 2017, he said: "I do not see the need to sell VTB in 2017. By." Rosneft "Igor Sechin, was confident from the beginning that they would come investors VTB different situation:. It is not clear who can be an investor and does it make sense? ". The head of VTB Andrey Kostin at the same forum in Davos was more optimistic: "If sanctions are modified or relaxed, or will signal to the market, and investors will not be afraid to participate in such transactions, of course, we believe that the package sale of at least 11% it is quite possible. "

In February, the desire to sell a piece of the second largest bank in the country was no more. On the contrary, such a desire even decreased. Deputy Finance Minister Alexei Moiseev in early February, said: "As for the timing of the sale of 10.9% stake, I think the privatization of VTB is unlikely this year." Andrei Kostin, less than a month has changed his point of view. In early February, he was no longer considered appropriate privatization of even a small piece of the bank:.. "In terms of sanctions consider the sale of shares of VTB inappropriate With regard to reducing the government's stake below controlling stake, there is need to weigh After the crisis of 2008, many investors believe the state participation in the capital VTB good. "

And now the bank's privatization postponed. Formally, therefore, that the sanctions actually reduce the attractiveness of the Bank and its securities. But even without the sanctions VTB's attractiveness to investors will be a very big issue.

But some real information about the bank is still seeping into the market. For example, of Forbes, it became known that the non-core assets of VTB is 40% of the capital. This is an absolute record among Russian banks. VTB losses from non-core assets are growing from year to year. It would seem that the bank's management must get rid of such assets. And it is, on the contrary, investing in them more and more money. If in 2010 investments amounted to 143 billion rubles, and brought 35 billion of losses in 2013 -.. Already 402 billion rubles and 17.4 billion rubles respectively, while in 2015 -.. A record 599 billion rubles and 35. 9 billion rubles. VTB took away for the debts of real estate and land, but to implement them so as to recover the money invested, the bank does not work. Time after time, the bank has to reduce the price, and sell non-core assets at a loss. What is it - incompetence or malice?

And I have not yet mentioned the participation of the bank in various dubious transactions, details of which periodically pops up in the media. How is the privatization of "Rosneft", and lending companies a widely known in narrow circles of the cellist. For participation in such operations the bank in the near future may receive a new batch of very painful sanctions.

Any independent shareholder will open very quickly these Augean stables. And, not to be accused of complicity in the illegal transactions, he will have to publish this information. The current management of the bank can not fail to understand.

As regards the real financial situation of the bank, it may become clear in general terms in the process of Due Diligence. This standard procedure of drawing up a fair presentation of the object of investment, including an assessment of the investment risk, independent evaluation of the object of investment, a comprehensive study of the company, a comprehensive review of its financial condition and market position. And it is inevitable before privatization. If the bank's management tries to hide the real financial position of VTB from potential investors in the process of Due Diligence, the subsequent scandal, after investors realize that they really bought it will be even louder.

It turnes out that the privatization of VTB for any foreign investor is impossible. It will be inevitably followed by major scandals and huge reputation losses both for the bank management and its owner, that its, the Russian authorities. It means that the Russian government must find such investors who would agree to pay some money without meddling into the bank management and its internal processes. To find another QIA and Swiss Glencore.

Is it possible? Judging by the constant postponing of the privatization of VTB, so far it has been impossible. But sooner or later they will have to sell the bank. Oil won't be always traded above 40 dollars per barrel. If no rich and silly investors are found until than, the government will have to use its reserves. Or ask for help. Tertium non datur.