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By John Helmer, Moscow

Mikhail Fridman (lead image, left) and Pyotr (Peter) Aven (right) have launched an effort to persuade high Russian and American government officials that they are in the process of selling their Russian bank,  and also that they are not doing anything of the kind.  

Uncharacteristically clumsy of them is the assessment of Russian sources. “Fridman has been trying to sell Alfa Bank for a long time,” one source says, “but can’t get his price. He has gone public this time after Alfa Bank officials got the message that someone important in Moscow is offended that he was not involved in the deal.”

“It’s quite risky to signal that a bank is up for sale,” comments another Russian source, a veteran of the Central Bank of Russia.  “Even for a strong name this can shatter confidence and trigger an outflow of deposits as a result. Depositors and other customers would ask themselves — why is the owner willing to sell? Maybe, bank customers will ask, the owner knows something about the bank others do not?  For a bank owner, such a risk may not be worth taking just for the sake of demonstrating something to somebody.”

A US source says that Fridman has been advertising “for a long time that he is Lviv-born, Ukrainian and Jewish by culture, and shouldn’t be sanctioned for Russian business he’s trying to get rid of. The latest press leaks were addressed to Washington to combat the bad press and sanctions threats Fridman is afraid of.”

“In light of recent media reports alleging some negotiations on the sale of Alfa Group’s banking assets,” an Alfa Bank press notice announced on Wednesday in Moscow: “this information bears no relation to reality. We categorically deny these rumors and the fact of any negotiations. No discussions of the kind have been or are being conducted with the market players.”

The Russian and US sources believe the phrases “no relation to reality” and “the fact of any negotiations” are untrue. The discussions already held have been with Russian state banks, so the phrase “market players” is misleading.

The story of the Fridman sale attempt started in English with reporters from an asset management group which owns a media outlet called Intellinews.com.   Reporter Ben Aris claimed personal familiarity with Fridman to uncover the obvious.   “During the course of dinner, I idly asked Fridman if he would ever sell Alfa. ‘Of course!’  he immediately replied. ‘If the price was right. And it would have to be a very good price.’ Fridman is laser-focused on making profits.” Anders Aslund, a mercenary Russia-hating writer based in Washington and financed by Ukrainian oligarch Victor Pinchuk, was reported by Aris as saying that if Alfa “is being taken over by a state bank, private banking is over in Russia. Back to the USSR in the form of authoritarian kleptocracy. Very sad. This has been rumoured for some time. Alfa Bank was the family silver.” Aslund is an advocate of Americanizing (stopping) all capital flows into Russia, and of international subsidies for Ukrainian banks, including Pinchuk’s Bank Dnepr Credit.


Left to right: Ben Aris; Anders Aslund; Victor Pinchuk. Pinchuk’s business and political alliance with Fridman, before and after the February 2014 putsch, has almost escaped press attention. Click to read.   Fridman has also enjoyed support from two of the US officials leading the putsch, then-US Ambassador in Kiev Geoffrey Pyatt and then-Assistant Secretary of State Victoria Nuland.  A report last week in The Economist recorded Fridman as telling the publication that “Russia’s interference in Ukraine is a particularly sensitive issue for Mr Fridman. A jazz festival sponsored by Alfa Bank in Lviv, his home town, was renamed after the bank’s role caused anger in both countries, though Mr Fridman suspects a protest at his Moscow office was organised by a disgruntled debtor.” 

Following the Intellinews reporting of Fridman’s bank sale attempt, the Financial Times reported: “The billionaire owners of Alfa-Bank, Russia’s largest private lender by assets, have approached competitors including state-run VTB and Italy’s UniCredit to discuss a possible sale, according to people familiar with the talks. Mikhail Fridman, Alfa Group chairman, has sought $7bn-$8bn for Alfa-Bank, the people said, in line with its book equity value of $7.1bn. But none of the informal discussions has advanced: the UniCredit talks began and ended more than a year ago; the VTB discussions took place several months ago.”

Fridman has controlled a 5% stake in Unicredit since  2012.  In 2016 Unicredit exchanged its Ukrainian bank Ukrsotsbank for a 9.9% shareholding in ABH Holdings of Luxemburg, the vehicle through which Fridman owns Alfa Bank Ukraine.   A year ago, in November 2017, Fridman arranged to sell down a small part of  his and his partners’ stake in Alfa Bank Ukraine to a Liechtenstein foundation and bank controlled by the Austrian Martin Schwedler. Fridman and his partners still control 74.4% of the holding. 

The Financial Times has quoted an Alfa Bank spokesman admitting there had been sale negotiations for Alfa Bank, but adding that   “ ‘absolutely nothing happened. Selling the bank now is unrealistic from many points of view. One of them is that we are making a 13-14 per cent return on equity and don’t want to sell.’ Andrei Kostin, VTB’s chief executive, told reporters last month that he had ‘neither the appetite nor the capital’ to buy Alfa-Bank ‘in the next three years at least’. UniCredit declined to comment.”

The Russian business press repeated a précis of the Intellinews and Financial Times stories.  RBC went further, noting there had been almost no market reaction to the sale reports in the pricing of Alfa Bank’s bonds. The reason for that, RBC quoted two Moscow bank analysts, is that if Alfa Bank were taken over by a state bank, the state would guarantee the bonds, and there would be no risk of default.  One of the analysts claimed, according to RBC, “VTB now does not have enough capital for such a transaction.”

This is denied by Russian and international banking sources. A leading Moscow banker, now working abroad, says the story of a state bank takeover of Alfa Bank “reminds me of Sberbank’s acquisition of Troika Dialog [in 2011]. In that case, Troika was a black hole of liabilities which everybody in the deal wanted to hide, so there was no transparency about the terms or costs. In this case, VTB is the black hole with no limit on the price it is able to pay for a deal if it is approved by the Kremlin. Someone from whom Mr Kostin takes his instructions has put a temporary hold on the deal. If the Americans are thinking to sanction Fridman for being close to [President Vladimir] Putin, they are wrong about the politics. They aren’t wrong about the money.”

Asked what they believe about the VTB-Alfa Bank negotiations, most Moscow bank analysts request anonymity and then say they don’t know.

Fridman was the first Russian oligarch to try litigating in the US courts to defend his business practices. In 2004 Alfa Bank was the plaintiff in a Washington, DC, federal court, and lost. In a precedent-setting judgement, US federal court Judge John Bates ruled that Russian oligarchs are public figures and fair targets for investigation, criticism, and attack. Read the story of the case here;  the Bates judgement is here.

Fridman, Aven, partner shareholder German Khan, and their bank tried again in April of this year in the local court of Washington, DC.


German Khan (left) and Mikhail Fridman (second from right) at a ceremony at the Babi Yar Holocaust Memorial Centre in Ukraine in September 2016, an initiative promoted by Ukrainian President Petro Poroshenko. Khan, Fridman and Aven are rarely photographed together. Khan, like Fridman, is Ukrainian by birth and an Israeli citizen; Aven remains a Russian citizen. All three live in the UK.  

Their targets were the authors of the Golden Showers dossier – Christopher Steele, Glenn Simpson, and Steele’s consulting company, Orbis Business Intelligence Limited.  For their story, with allegations of the Alfa group’s involvement in the US presidential election of 2016 at the behest of President Vladimir Putin, read the archive

On August 20 Fridman & Co. lost again, suffering dismissal with prejudice by Judge Anthony Epstein. Epstein ignored the allegation of election interference, ruling that the “motion to dismiss [by Steele and Orbis] does not require the Court to determine whether any information in the Steele Dossier is accurate or inaccurate.”

Epstein was caustic in his criticism of Fridman and his partners. “It is ironic that Plaintiffs, who are non-resident aliens with Russian and/or Israeli citizenship…argue that non-resident aliens [the defendants Steele and Orbis] do not have rights that the First Amendment [of the US Constitution] requires a US court to respect – while petitioning a US court for a redress of their grievances…Plaintiffs do not explain why non-resident aliens have the same rights as US citizens to bring defamation actions but non-resident aliens do not have the same rights as US citizens to defend themselves.”


Epstein’s ruling reports that Fridman is an Israeli citizen. Source: https://www.courthousenews.com/

In London last week Fridman called in The Economist to reverse the impact of the Epstein judgement and the report of his attempt to sell Alfa Bank.  The magazine tipped its title in Fridman’s favour: “Mikhail Fridman shows the downside of being a Russian oligarch — It’s hard to be neither too close nor too distant from Vladimir Putin”.

Fridman confided that “in an era of strained relations and suspicion, the equidistance is hard to maintain: just close enough to power looks too close to some. In the West, Mr Fridman knows, people assume that tycoons like him are ‘agents of influence’.”

The magazine went on: “Meanwhile, the tricky balancing act has incurred another, more personal cost. In 2015 Boris Nemtsov, an opposition leader, was assassinated outside the Kremlin. Mr Fridman counted Nemtsov among his ‘closest friends’; but ‘any contact with him could be interpreted as a kind of support,’ which would ‘not [be] very useful for doing business’. So Mr Fridman stopped speaking to him. ‘I regret that heavily,’ he says now. ‘I did not know there was no future for our relationship.’ In Mr Putin’s Russia, some things cannot be put right.”

This week the Ukrainian government in Kiev confirmed that VTB and Alfa Bank are currently in negotiations for Fridman and his bank to acquire the assets of VTB Ukraine, which the Ukrainian Government has prevented from continuing in business.   The bidding price for VTB’s assets is reported to be around $300 million. 

 

 

 

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