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By John Helmer in Moscow

When it comes to the heroics of the free press, London reporters and their proprietors prefer to tell of chests bared and bloody corpses on foreign streets, preferably in places designated by Her Majesty’s Secret Service as enemy country. Moscow, for example.

In the City of London, by contrast, the spectacle of reporters putting on their blinders and dropping their shorts for money, or the fear of it, is not even anti-heroic, but the kind of reality show that can’t win awards in the light entertainment or comedy categories.

Take, for example, the recent sale and purchase of the London Evening Standard for the price of one English pound by Alexander Lebedev. The seller was the Harmsworth family, which has run out of ready cash. The fourth Viscount Rothermere inherited a peerage that was his progenitor’s reward for publishing newspapers that entertained politicians just before World War 1, and who subsequently promoted reporting that was good for his real estate, commercial, and sexual interests in the fascist states of Hungary and Germany. The cash the current viscount has explained he doesn’t have is estimated at ₤1 million per month, which the Standard is said to have been losing over the past year.

Lebedev is reported in the London papers (and reports himself on his personal website) as a former lieutenant-colonel of the KGB, whose job as a spy once posted in London required him to read, clip and file the newspapers.

The Financial Times reported the transaction, noting that Lebedev was buying through a special purpose vehicle (SPV) he had set up in December for his son Yevgeny to run. Called Evening Press Ltd., in which a Rothermere company retains a 24.9% stake, the new company is, according to the Guardian, “a shell”. According to the Financial Times, it has a “£40m equity value”. Financial reporters should know how to count, but it isn’t clear how the SPV can be worth so much if 75.1% of its only asset is currently worth ₤1.

The Financial Times reporters didn’t ask Lebedev senior or junior to explain their capital position. Lebedev senior was quoted as saying: ”We are strong supporters of a free and independent press and we greatly admire the Evening Standard as an iconic publication with its pedigree of fine journalism and commentary. We are committed to strengthening the newspaper’s competitiveness and look forward to working with Associated, which will continue to be involved as a minority shareholder.”
The Times and the Guardian also reported similar statements from Lebedev, but failed to ask him an obvious question – if Rothermere, advised by Lazard Freres, had come to the conclusion that the asset wasn’t worth more than ₤1, where did the Lebedevs come up with their “£40m equity value”?

The Times decided to skip the arithmetic, and take the sums for granted. Lebedev, opined The Times, was “a public spirited tycoon”. The only outlay bigger than a pound the Times could find to report was this: “The Standard’s new owner will subsidise 20% of its running costs.” The Moscow correspondent of The Times also reported Lebedev as saying that he is promising substantial sums to his new asset: “It’s tens of millions of pounds in the next couple of years. Of course, we have a plan, a business plan.” On the question of how Lebedev could afford to pay, The Times took him at his word – but only his word. “Mr Lebedev disclosed that he was worth $1.5 billion (£1 billion), less than half of the $3.5 billion fortune attributed to him by Forbes magazine in its annual list of the world’s richest people. He said that he had sold property in Italy and a private jet to help pay for the newspaper project.”

Forbes’s notice on Lebedev last year claimed that “most of his fortune now tied up in Gazprom and Unified Energy Systems shares.” If so, then Lebedev’s fortune ought to have declined in proportion to Gazprom and UES. Since Gazprom stock is now worth 20% of what it was at peak, when Forbes was doing its sums, and UES stock is now 5% of what it was worth at last year’s high, and supposing his portfolio was constructed as Forbes reported, Lebedev’s stakes should be down to between $175 million and $700 million; that’s one-third of the lowest figure Lebedev has conceded to the London press so far.

According to an analysis by the Fitch ratings agency in Moscow last July, National Reserve Bank was actively selling its Gazprom shares between the second half of 2007 and the second half of 2008. Does this mean that the bank was selling the stock to Lebedev, or that they were acting together to sell?

Whatever Lebedev’s holdings may be – he appears to hold no more than 78% of the bank through the National Reserve Corporation – if they are also pledged to secure borrowings, then Lebedev might be motivated to sell real estate and aircraft for want of anything else more liquid. But according to The Times, Lebedev’s acumen is more valuable than the money he’s putting into the Standard. He’s cleverer than Karl Marx, according to himself. “I was trying to prove one thing which was contrary to what Karl Marx said, that you could have values and morals added to money.” Watch that conditional subjunctive – it’s been put in the past tense.

In the past, the Guardian has had internal trouble over whether to publish less than endearing financial analysis of the business operations of a more important, richer Russian than Lebedev, Roman Abramovich. So, while claiming credit for being first to report Lebedev’s takeover from Rothermere, the Guardian has also struggled with poor Lebedev – I mean, rich Lebedev. It also took a stab at hinting that he is neither rich, nor poor, and that, when it comes to covering the Standard’s losses, the money that is necessary might not be his. According to the Guardian, Lebedev might have been backed by Rupert Murdoch’s News Ltd., with the object of destroying competition for London’s afternoon and evening market, and securing the eventual profit of Murdoch’s publications.

When is eventual for Murdoch, and how much money Lebedev may have to top his ₤1 spend so far , aren’t questions that should require the courage of the heroes of the free press of London to ask. But Lebedev’s only credentials in that department have been reported as stemming from the fact that he holds a 39% stake in a Moscow newspaper, two of whose reporters have been assassinated – Anna Politkovskaya in 2006, and Anastasia Baburova a few days ago.

So why hasn’t anyone in London investigated Lebedev’s business to determine whether he has the money he claims, or whether he’s fronting for someone or something else? Why can noone in a London newsroom count the difference between the $2.5 billion Lebedev told the Guardian he was worth on January 14, and the range of $1 and $2 billion he gave the Telegraph on January 25?

Asking these questions doesn’t look like the kind of heroics a reporter would need a bullet-proof vest for, let alone earn a Pulitzer Prize, or a Freedom House medal. But it is the answers to these questions that makes heroes of those who ask them, jokesters of those who do not.

The Guardian claimed in mid-January that Lebedev’s wealth portfolio included “one of Russia’s largest private banks, a 30% stake in Aeroflot, Russia’s state airline, and other interests including a London restaurant and a luxury Italian hotel.” The Guardian was simply taking Lebedev’s self-interested word, and failing to check.

Lebedev’s personal website claims that through a holding, Lebedev holds “significant shares in Gazprom”. That may no longer be true. The Fitch estimate of last July suggests that what could have been worth to Lebedev and the bank about $1.6 billion in mid-2008 would today be worth little more than $350 million.

The website also claims Lebedev holds a 26% in Ilyushin Finans, a leasing concern for Russian-made civil aircraft. That, according to the company’s own reports, is in financial trouble. On December 29, it borrowed Rb1.2 billion ($36 million) from the state-controlled Vneshtorgbank (VTB) to cover bills due from aircraft engine suppliers. At the same time, the company publicly appealed for state financing guarantees of Rb40 billion ($1.2 billion) for two years to cover an order book of aircraft and components.

Other assets reported on Lebedev’s website include a company specializing in growing potatoes. There is no reference to the liabilities and debts of the holding, the pledge status of the assets, or the net worth.

National Reserve Bank published its last annual report for 2007; Deloitte Touche was the auditor. The annual report attaches a one-page excerpt of the auditor’s report, but the full report is not published.

The bank’s assets were reported to have reached Rb40.1 billion ($1.5 billion), growing at an annual rate of 26%. Independently of the bank’s own reports, the asset base had grown to Rb48 billion ($1.5 billion) as of October 1, 2008. Depending on which rating service and what date you choose, this puts the bank at either number 46 or number 60. That’s not what is usually meant by leading its field.

In 2007 the loan portfolio for the year totaled Rb31.2 billion. Related parties – that is, companies in which Lebedev and related shareholders had a substantial interest – accounted for 26% of the outgoings – that is, one rouble in every four handed out by the bank. Analysts at Alfa Bank and Troika Dialog, leading Moscow investment houses, say they do not cover National Reserve Bank, and can’t vouch for its valuation or profitability.

The bank acknowledges that between 2006 and 2007, despite the expansion in the asset base and loan book, the bank’s profit fell by 39% to Rb5.7 billion ($219 million). The bank’s annual report explained: “this decrease is of a planned nature and shall not raise any apprehension”. Since most of the net income was reported to have been earned from “securities operations”, it is reasonable to suppose that last year’s crash of the Russian stock market may have transformed the profit and loss results for 2008. A notice posted by the bank on January 16 – but missed by every newspaper reporter in London – disclosed that net profit for 2008 (Russian Accounting Standards) had come in at Rb2.5 billion ($76 million). That represented a fall of 56%. If Lebedev’s 78% stake in the bank entitled him to that share of a 100% payout of profit in dividend, then Lebedev might have less than $60 million in fresh cash from the bank to cover all his lossmakers, plus the Standard.
Lebedev told a Rome-based reporter last week that National Reserve Bank “makes the equivalent of €100-million ($130-million) a year in profits… Everything I have is loss-making, with the exception of the bank.” Maybe he was referring to 2007. Asked directly, National Reserve declines to give revenue, costs, and income results for 2008. The bank spokesman also refuses to transfer the inquiry to Lebedev’s office. She also would not give her last name.

The Moscow branch of the Fitch rating agency says that it assigns Lebedev’s bank a B rating. Fitch also acknowledges that National Reserve has not been rated since July of 2008, and that no financial data or estimates for the second half or the full year have been gathered to advise the market on what has happened to cause the bottom-line collapse in the last six months.

Lebedev has also told one reporter that he is hanging on to his 9-room Umbrian hotel, and that he doesn’t own a private jet. The Telegraph in London has reported at almost the same time that Lebedev has sold “a VIP aircraft from his aircraft leasing business and an 11 hectare plot in Umbria, Italy to raise the funds” for the Standard takeover. “I have been searching my pockets very deeply, and selling everything I can, to do this.”

What is known for certain is that Lebedev doesn’t own 30% of Aeroflot any longer. Had the Guardian read the Russian reports, it would have noticed that Lebedev had sold a 4% to 5% stake to Vneshtorgbank late last year, and has been obliged by Deutsche Bank to post the remaining 25% stake as security for a $145 million loan. At the current market value of Aeroflot, that stake is worth about $190 million. With Deutsche Bank’s hands on it, it contributes zero to Lebedev’s net worth.

It’s possible, if what Lebedev admitted to a Telegraph reporter is true, that his cash commitment to the Standard takeover is so small and so limited, he doesn’t need to demonstrate wealth; and an investigation of the lack or loss of it won’t make much difference. “Mr Lebedev”, the Telegraph reported on January 25, “is to spend £25m revamping the title, [and] said he has seen his wealth halve in the past six months and will not be able to commit to the title for more than three years if markets continue to fall. ‘The last thing I want is to be short of cash, with the market moving against us and no revenues. Then we would have to close. I mean, these things happen in life. One has to face things straightforwardly.” Close is exactly what the Standard’s competitors want.

Dividing £25 million by three years suggests Lebedev is offering the Standard no more than £8.3 million ($11.5 million) per year. This is hardly the stuff that oligarchs or billionaires are made of – and it’s less than Rothermere is estimated to have been losing on the asset for the past year. But why is the new owner issuing a three-year ultimatum? Is that the term of Murdoch’s interest?

According to the Telegraph, Rothermere asked Lebedev where the money was coming from. “He had to prove he had the funds in place to support it,” according to the Telegraph. Which begs the questions – how much, from where or whom, and how to be sure?

“The problem is,” Lebedev told the Telegraph, as he may also have told Rothermere, “I’m short of cash. When I was thinking about this a year ago and I started negotiations about the Evening Standard, I had a nest egg of $1.5bn (£1.1bn) in stocks, which is not there any more.”

One of Lebedev’s offers to save cash at his new asset is to pay his London reporters shares in one of his Russian companies. “Let’s assume they are hesitant and think the risk is too high [buying Evening Standard stocks] – why not National Reserve Corporation stocks?” his National Reserve Corporation.”

Oddly, the Telegraph did not report whether these unlisted stocks are worth anything. No Standard reporter has been quoted, not even anonymously, as having investigated the matter. And not a single London reporter has been to Sake no Hana, in St. James’s, Lebedev’s restaurant investment, to check whether the maitre d’ is telling the truth when she claims: “we are busy, as usual.” Lebedev has claimed in one of his interviews that compensating Standard journalists with Japanese food might “fill the restaurant somehow”. He acknowledges it too is losing money.

Note: this report could not have been completed without the performance, and non-performance, of the following London journalists: Amanda Andrews and Rowena Mason (Telegraph); Luke Harding, Chris Tryhorn, Stephen Brook, Mark Sweney, and Oliver Luft (Guardian); Tony Halpin, Helen Womack, and Dan Sabbagh (The Times); Catherine Belton, Charles Clover, Ben Fenton, Salamander Davoudi, John Lloyd, and Andrew Edgecliffe-Johnson (Financial Times).

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