July 20th, 2011

Barclays looks to sell off Russian banking arm – at a £300+ million pound loss – while state-owned banks give themselves a bailout

The Guardian (UK) reports that Barclays is retreating from the retail banking business in Russia.

BarclaysJill Treanor writes that Britain’s third largest bank may recoup just 10 percent of the purchase price for Expobank, the Russian lender it bought for £373 million in March 2008. Barclays is now soliciting bids, at what would be a 90 percent loss, mostly from large Russian banks.

Barclays is one of a growing number of international firms pulling out of consumer banking in Russia. The company’s new CEO, Bob Diamond, made the decision to sell off unprofitable businesses shortly after taking over last year, and Expobank is one division he says needs to go.

Foreign banks have recently had great difficulty finding success in Russian consumer banking . You may recall that HSBC announced in April that it was pulling out of Russia (selling their retail arm to Citi) after just two years. Banco Santander of Spain sold its retail banking business to a firm based in southeastern Russia this past January. This follows the failure of the BP-Rosneft deal and many other failed international business partnerships of the last year. Kremlin observers have mused that as long as the state manipulates the rules of the game — whether by clamping down on entrepreneurs like Khodorkovsky or on the opposition like the People’s Freedom Party — foreign entities should be wary of active participation in Russia’s economy.

VTBAt the same time foreign banks are leaving, Russia itself is consolidating its power in the banking sector. State-owned VTB Bank is in the process of fully buying out the Bank of Moscow, though the bad debt on BofM’s balance sheet has forced the Central Bank to bail it out, to the tune of $14.2 billion. But, of course, VTB “does not expect any negative impact on its financial performance to result from this acquisition,” according to a company statement.

In reality, the BofM takeover shows how corrupt and well-connected managers, like those at VTB, can force a hostile takeover of the nation’s fifth largest bank — using state funds and in conflict with state interests. That the VTB takeover story has become a footnote on European financial pages shows, sadly, that we have all just come to expect this behavior from the state.

  1. No comments yet.
  1. No trackbacks yet.