When a tree falls in the forest, everywhere in the world the same thing happens. It makes a loud noise; it drops to the right or left; it crushes the life below unpredictably. But when a Russian bank crashes, it comes down in a way that’s unique – less like a doomed tree, more like a rat escaping into a warren of tunnels that were dug in advance.
Alexander Smolensky, the proprietor of SBS-Agro, Russia’s largest depositor bank in 1998, is probably the only banker in the world to escape scot-free from the consequences of what he did to bring his bank down. As he shuttles between homes in Austria, England, Russia and elsewhere, he has never been held accountable for his actions, which led to the billion-dollar losses of the bank, nor has he answered to the charges that he and his cronies stripped the assets of the bank, both before and after the crash. He has not been charged with any wrongdoing. He has paid nothing. He continues in the banking business as if nothing had ever happened. His net worth may be as good, or even better today, than it was before he and his bank parted company.
In most forests, fallen trees attract woodcutters. But the liquidation of SBS-Agro has proceeded with no accountability from the Central Bank, which holds all the evidence of what happened, or from ARCO, the government’s special agency for bank insolvencies. There has been no parliamentary action, no review by the Accounting Chamber, no General Prosecutor’s report, no statement by President Vladimir Putin or any of his officials. SBS-Agro has been cut apart without a sound.
Compare the circumstances in South Africa over the past month, when Saambou Bank, one of the largest lenders to black Africans, was forced to close after there was a run of depositors to withdraw their funds. As in Russia, there was immediate suspicion that those who controlled the bank had started to bail out when they realized a crisis of confidence was inevitable. As in Russia, there is widespread suspicion that the state banking authority, the Reserve Bank of South Africa, had been dealing secretly to sustain Saambou’s liquidity while it continued adding to its loan book, sustaining the bank’s insiders but ultimately abandoning the bank’s depositors and clients.
The political consequences have obliged both the South African and Russian liquidators to offer small depositors some hope. Within days, Saambou’s 300,000 depositors, with accounts averaging $261, were offered the chance to withdraw the balance up to the average total. In Russia, it has taken almost four years for the government to offer SBS-Agro’s depositors to return part of their money. But by the time the former dollar accounts have been converted into rubles at last year’s exchange rate, and the Finance Ministry bonds into which the cash has been swapped can be redeemed, the value of the depositors’ balances will have shrunk to around half of what they were in August 1998. Today, Alfa Bank, one of the government’s designated agents in the settlement, is offering to buy up depositors’ paper at just 54 percent of their face value. Russians would say getting that much back from a bank crash is a good deal.
There are big differences, too. What brought Saambou down was its huge exposure to a practice known everywhere else in the world as loansharking. In South Africa, since the end of apartheid, that has been called by the name “micro-lending.” That is what happens when poor people with unstable jobs and unpredictable cash incomes are encouraged to buy consumer goods on short-term, high-interest credit they can barely afford. To fill its micro-lending book, Saambou’s management and salesmen abandoned the normal credit checks of a regular bank. They also dropped the harsh debt-collection practices of the black townships. Instead of threats to break legs and cut off fingers, Saambou offered loan rollovers. But lacking even accurate names and addresses for their debtors, the bank was first forced to rely on crooked intermediaries, and then on shareholders and the Reserve Bank to accept increasingly large loan loss provisions. In short, Saambou crashed when depositors began to suspect that the losses might outstrip the income or the realizable value of the bank’s assets.
Russians would be mystified by the Saambou crash. For one thing, those who are poorest are benefiting quickest and most from the cleanup. Not only poor depositors will get their money back. Poor borrowers in the micro-lending program are likely to have their loans written off. South African critics of the Saambou liquidation process are complaining that the solvency statutes do not allow the official liquidators to favor one group of creditors over another. It’s difficult, politically speaking, in South Africa to complain when poor blacks benefit from the misfortunes of wealthier whites. But there is no doubt that apart from a few insiders at the top of Saambou, it will be the white shareholders that will suffer most from the crash – and not only Saambou shareholders. The crash has triggered a loss of confidence that in four weeks has wiped up to 10 percent off the value of other bank shares.
The ordinary Russian depositor in SBS-Agro would be astonished to learn that in his predicament in South Africa, he might emerge from the wreckage more or less intact, while Alexander Smolensky, the controlling shareholder of SBS-Agro, would suffer most. In Russia, most Russians would say, if banks are like trees, they never fall down. They always fly up and away.