The bank founded by Moscow's deposed city chief received the largest bailout package in Russia's history on Friday following its takeover by the state-controlled lender VTB.
The 395-billion-ruble ($14.2-billion) cash injection for the Bank of Moscow followed a review of its books by its new owners and a decision by the government to keep the country's fifth-largest banking group afloat.
Analysts said the size of the package was much larger than expected and a sign of the state's desire to help VTB — Russia's second-largest financial institution — in taking over a weakened company.
The Bank of Moscow became the heart of a vast city property empire that unravelled shortly after mayor Yury Luzhkov's abrupt removal by the Kremlin last year.
VTB bought a 46.48 per cent stake in the bank in a hostile takeover that was criticised by some analysts at the time for its haste and lack of due diligence, reflecting the political backdrop to the deal.
The head of one of the state agencies involved in the rescue package revealed on Friday that about two-thirds of the Moscow bank's loans were either unsecured or issued to offshore organisations.
The Central Bank said 295 billion rubles in taxpayer money will be issued directly by the Deposit Insurance Agency at just 0.51 per cent — well below the rate of inflation.
The remaining money will be put up by VTB investors. The Central Bank said the cash infusion would help 'remove conditions causing insecurity in the Bank of Moscow's financial position.'
The Bank of Moscow was initially hit by political scandal when its former head Alexei Borodin was accused by prosecutors of approving a $435 million loan backed by city money for a real estate company run by the mayor's wife.
Borodin fled to London when investigators pressed charges against him while the mayor's wife was last reported to be in Austria.
The fugitive banker has branded all the charges against him part of a broader political vendetta and expressed outrage Friday at suggestions that the Bank of Moscow was mismanaged under his rule.
'I am, like everyone else, shocked at the size of the $14 billion bailout that the Central Bank has just announced,' Borodin said in a statement released on his official website.
Borodin insisted that 'the principal motivation behind the change of control of Bank of Moscow was political' and noted that the Central Bank never outlined where specifically the missing money went.
VTB for its part said in a statement that the Bank of Moscow had 'huge potential' and promised to incorporate it into its international banking service.
Analysts said the Bank of Moscow's main attraction lay in its vast banking network and integral role in the Russian capital's utilities payment system.
Its electricity and telephone bills have guaranteed the bank vast cash flows that continued through recent years of economic crisis and other shocks.
Moscow's Alfa Bank said the terms of the low-interest loan will see the Bank of Moscow save 242 billion rubles ($8.7 billion) over 10 years.
'We understand that with this scheme the government is effectively taking care of the Bank of Moscow's losses in such a way that they have no negative impact on VTB's capital,' Renaissance Capital bank said in a research note.
But the government flatly dismissed accusations that it was picking favourites in Russia's banking wars.
Source : New Age
