What threatens Promsvyazbank and Moscow Credit Bank

Banks from the "Gavrilov list" redeem their debts from the market. In the past week, this decision was practically simultaneously adopted by the Moscow Credit Bank (IBC) and Promsvyazbank (PSB). The decision to redeem the bonds was preceded by a sharp drop in the value of securities of both issuers.
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Against the background of news about the sanation of Binbank and possible problems in the ICD and PSB, the quotes of these credit institutions fell below par. Experts note: on the one hand, banks are profitable to buy out undervalued bonds, on the other - an unfavorable information background forces them to spend significant funds to maintain the confidence of investors. The conscience of the latter has reasons even without a scandalous letter from the employee of the MC Alfa Capital. In particular, ACRA analysts recently stated about the greater risks that may be associated with the assets of banks under the control of private owners and having a limited potential for financing. Some observers are referred to as PSB and ICD. Representatives of Promsvyazbank and Moscow Credit Bank, of course, state that there are no problems with liquidity, but the situation with the repurchase of their own bonds and the placement of new bonds shows that it is given to them with great efforts.

Take advantage of the moment

Prices denominated in dollars subordinated Eurobonds MKB fell on Monday, September 25. As the head of the analytical department of the BKF bank Maxim Osadchy noted, the eternal Eurobonds of the IBC, which were issued in May this year, at the close of trading on September 22, were 85.8%, and on the 25th they fell to 71.5%. Later, they "rebounded", but still traded at a level slightly above 80%.

Following the fall in quotations, it became known that the major shareholder of the Moscow Credit Bank, the Rossium concern, announced its intention to buy subordinated Eurobonds of the MKB, namely, bonds with redemption in 2018 and 2027, as well as perpetual bonds. Chairman of the Board of the IBC Vladimir Chubarzayavil that the bank does not plan to apply for help to the regulator, since it has an instant liquidity reserve of 330 billion rubles. The sharp decline in prices for subsidized bonds, he associated with the general nervous situation in the banking market due to the rehabilitation of two large banks.

However, analysts continue to closely monitor whether there are any delays in the payments of the MKB and Promsvyazbank, which also bought out part of its own subordinated Eurobonds. We are talking about securities with redemption in 2019. As a result, the purchase of PSB increased its share in the capital by 37%, in monetary terms it is 105.3 million dollars. The press service of the bank explained that this was done to reduce the interest expenses of the organization for servicing expensive eurobonds that are not included in the calculation of capital due to amortization of the term, as well as due to the attraction of a new unlimited subordinated issue in July 2017.

Indeed, in mid-summer, Promsvyazbank placed perpetual bonds worth $ 500 million. According to Fitch Ratings analyst Anton Lopatin, at the end of June the bank's capital adequacy ratio H1.2 was at 8%, while the minimum CB requirement was 7.6%. According to the expert, this is the lowest figure among systemically important banks.

Rating wonders

Against the backdrop of mixed news, the authoritative Moody's agency simultaneously upgraded and downgraded the ratings of the Moscow Credit Bank. On the eve of Moody's reported on the upgrade of the senior unsecured debt rating of MKB by one step (up to Ba3) with the forecast "stable". Simultaneously, experts have lowered the basic credit rating of the ICB (that is, its rating without taking into account external support factors). The base score is reduced by one step, to B2. In addition, the agency lowered the subordinated debt rating of the MKB also by one step, to Caa2. According to Moody's, "the bank's creditworthiness is subject to increased risks due to the ongoing strategy of providing large amounts of financing to a small number of customers with very high debt burden."

The contradiction in Moody's is explained simply: the agency believes that the inclusion of the IBC in the list of systemically important credit institutions (SZKO) of the CBRF is so favorable for the bank since mid-September, which justifies raising the senior unsecured debt rating by two levels of the basic credit rating. Why, from Moody's point of view, the fact of access to the liquidity of the Central Bank is more positive for the MKB than for other banks from the SZKO list (for example, Promsvyazbank) remains unclear.

However, practice shows that the inclusion of the Central Bank of the Russian Federation in the list of SZKO improves banks' access to liquidity, but not to sources of capital. Thus, the holders of the junior debt are in no way protected from the possible distribution of losses to them in the event that the regulator starts the sanation. The Central Bank openly says that the subordinated liabilities of sanitized banks (irrespective of the conditions for their placement) are subject to cancellation. Thus, with financial recovery, holders of subordinated bonds of the bank become the most vulnerable category of creditors. In comparison with the deposits of individuals and accounts of companies, their money is practically not protected.

Repurchasing bonds by issuers themselves must demonstrate the confidence of their management and shareholders in sustainability. But, judging by the dynamics of prices for ICB and PSB bonds, investors do not trust them much yet. As the director of the department of UFG Wealth Management Alexei Potapov noted, the decline stopped, and the price growth is not yet visible.

A well-known banking analyst Maxim Osadchy managed to add fuel to the fire of distrust when he commented on the headline of Vedomosti that Promsvyazbank and MKB "do not threaten anything," in a word: "In vain."