Russia: Otkritie Bank Restructuring, 2017

In July 2017, Russian rating agency ACRA assigned a BBB- rating to Otkritie Bank—a systemically important institution and Russia’s largest privately owned bank—citing concerns about Otkritie’s loan book from recent acquisitions (Novye Izvestiia 2017; Seddon 2017b; Seddon 2017c). Over the subsequent two months, Otkritie also finalized a series of unprofitable acquisitions of struggling banks and other financial institutions with government approval, following the previous resolution policy. Meanwhile, large deposit outflows resulted in Otkritie’s losing RUR 611 billion in deposits, or 20% of its balance sheet (Seddon 2017d).  On August 29, 2017, following a request from Otkritie’s shareholders, the CBR announced the rescue of Otkritie Bank using for the first time a newly created resolution mechanism, the Fund for Banking Sector Consolidation (CBR 2017d). Under this mechanism, the CBR would take at least a 75% equity stake after appointing a provisional administration to assess the bank’s financials (Mokeeva and Popova 2020). At the time of the intervention, Otkritie was the eighth-largest bank in Russia by assets, with RUR 2.5 trillion assets and RUR 539 billion of citizens’ savings and deposits (CBR 2017d; Dementyeva et al. 2017; Karpova and Kruglikova 2018).

While other private banks volunteered to participate in the bailout under the old resolution scheme (in other words, by receiving a loan from the CBR), the CBR opted for the new scheme by first appointing a temporary administration and ultimately nationalizing the bank following a RUR 456.2 billion recapitalization in December 2017 (Dementyeva et al. 2017; Interfax 2020). The CBR justified the usage of the new resolution mechanism on the basis of decreasing bailout expenditures, enhancing monitoring during resolution, and expediting the process of rehabilitation, three areas where the old resolution scheme fell short (CBR 2018c; Invest Profit 2018).

The recapitalization aimed to make Otkritie compliant with regulatory capital requirements, and in December 2017, the temporary administration’s tenure ended with the creation of new permanent management bodies (CBR 2017h; Otkritie 2018a). However, by January 1, 2018, Otkritie was noncompliant with several regulatory requirements, and on January 19, 2018, the CBR announced that it would continue operating the bank as a going concern (Otkritie 2018a). In March 2018, the CBR announced the merger of another bailed out bank, B&N, with Otkritie, which was finalized on January 1, 2019, following the conversion of B&N’s shares into Otkritie’s. The CBR also announced the creation of a noncore asset bank, through a merger of Trust Bank (a former subsidiary of Otkritie, which the CBR nationalized in March) and Rost Bank (subsidiary of B&N) (CBR 2019; Interfax 2018; Otkritie 2018a; Seddon 2018).

In July 2018, following the merger of Trust and Rost into the NAB (hereinafter Trust NAB), the CBR decided to restructure Otkritie by establishing a bridge bank for its noncore assets, Bank Otkritie Special JSC, which would subsequently merge with the newly created Trust NAB in November 2018 (Otkritie 2018b). According to one report, these assets amounted to about RUR 438 billion (Fojcik 2018b). In July 2019, the CBR completed its restructuring and resolution measures into Otkritie, with the bank having met its rehabilitation targets. Thereafter, the CBR developed a plan to divest its stake in Otkritie, and in December 2022, a state-owned bank, VTB, acquired 100% of Otkritie for RUR 340 billion (CBR 2022).

Before the bailout of Otkritie, the CBR extended substantial liquidity support both through its standing facilities and in ad hoc forms. In August, Otkritie had borrowed RUR 728 billion from the CBR, which included an unsecured ad hoc loan (Seddon 2017f). The CBR had not provided unsecured loans since the Global Financial Crisis of 2007–2009 (WPS USA 2017a). By January 1, 2018, Otkritie had outstanding RUR 380 billion in “short-term” liquidity support from the CBR (CBR 2018c). The CBR provided such liquidity support in the form of deposits using funds from the FBSC (CBR 2018d; CBR 2019).

On September 1 (announced on September 4), the CBR introduced a new, broadly defined emergency liquidity facility for banks that had exhausted all other liquidity sources. Eligibility was at the discretion of the CBR, which would consider a bank’s systemic importance and solvency before approving draws. Approved banks could pledge collateral outside the CBR’s Lombard List (collateral accepted for standard facilities), claims on nonfinancial institutions, and other types of securities. Liquidity could take the form of a repo and/or secured loan, depending on the collateral, and would have a maximum term of 90 days and a rate of 1.75% over the CBR policy rate (CBR 2017e). See the forthcoming YPFS case study on the CBR’s ad hoc emergency liquidity support to Otkritie (Hoffner forthcoming).

The legal authority for the CBR to inject capital into a distressed bank is enumerated in the June 2017 amendments to the 2002 Federal Law on the Central Bank of the Russian Federation (CBR Law) and the 2002 Law on Insolvency (Bankruptcy Law) (Russian Federation 2002b; Russian Federation 2002c). The Duma amended both laws in the months before Otkritie’s rescue with the legal adoption of the CBR’s new rehabilitation (bankruptcy prevention) mechanism. Pursuant to Article 46 of the Central Bank Law, the CBR’s board of directors decides on the implementation of resolution measures (Russian Federation 2002a, art. 46).

Under Russia’s Bankruptcy Law, a recapitalization from the CBR required it to take over at least 75% of the bank’s share capital (Russian Federation 2002d, art. 189.49).

Article 189.10 of the Bankruptcy Law outlines the following conditions under which the CBR may resolve a bank (Kinash 2019; Russian Federation 2002d, art. 189.10):

• Repeatedly fails to satisfy claims of creditors over the past six months and/or fails to make tax (mandatory) payments within three days of the due date owing to insufficiency of funds;
• Allows an absolute decrease in capital (own funds) by more than 20% of the trailing-12-month maximum, and simultaneously violates a mandatory ratio set by the CBR;
• Violates any capital adequacy ratio set by the CBR;
• Violates by more than 10% the current liquidity ratio, set by the CBR, during the past month;
• Allows for a decrease in capital at the end of a reporting month below the bank’s authorized capital (bankruptcy prevention measures not taken if the bank has held a license for under two years).

Bank owners, aware of any of these conditions, are required to request resolution from the CBR. The CBR may also discover such occurrences during audits and subsequently implement resolution (Kinash 2019).

The CBR Law and Bankruptcy Law prescribe the CBR to use, for the purposes of bank resolution, funds from the FBSC, a subdivision of the CBR (Russian Federation 2002a, arts. 75–76). With regard to banks under resolution, such uses cover: acquiring bank shares (including in excess of their nominal value) and selling such shares (including below the purchase price), extending subordinated credits (deposits, loans, and bonded loans), and acquiring and alienating property rights and claims to said banks (Russian Federation 2002a, arts. 66–67). The CBR could also transfer claims on and property of banks under resolution to the FBSC Asset Management Company (FBSC AMC) for trust management and for the purposes of establishing a unit investment fund; the CBR could also extend financing to the FBSC AMC to participate in resolution measures (Russian Federation 2002a, arts. 66–67). The FBSC AMC is a separate limited liability company, wholly owned by the CBR, acting as a special purpose vehicle in bank resolution (CBR 2018c; Russian Federation 2002a, arts. 74–76). This vehicle served as the trustee for the CBR’s stake in Otkritie.

The CBR is also entitled to appoint a temporary administration to a distressed bank for a term of up to six months (Russian Federation 2002a, art. 63).

On October 30, 2017, the CBR-appointed provisional administration failed to reach the necessary quorum (shareholders in attendance) at Otkritie’s shareholder meeting to bail in creditors (Astapenko 2017; WPS USA 2017b). The CBR requested amendments to the Bankruptcy Law, which the Duma passed on November 25. On November 29, the CBR transferred the powers of provisional administration to the FBSC AMC, which enabled the provisional administration to bail in the subordinated creditors and equity holders (CBR 2017g; Prime News 2017b).

Following a change to Russian bankruptcy laws in May 2017, the CBR acted as the primary resolution authority. Before the change, resolution typically centered on the DIA, which would extend cheap long-term loans, provided by the CBR, to willing private buyers of distressed banks. The old model was deemed inefficient, resulting in drawn-out and expensive resolution processes with little oversight (Mokeeva and Popova 2020). As a result, from 2017 onward, the CBR has administered resolution using its newly created CBR subdivision, the FBSC, with Otkritie being the first use case (Mokeeva and Popova 2020).

Under this new mechanism, the CBR’s board of directors makes a decision to implement resolution for a distressed bank (under the conditions specified in Key Design Decision No. 3, Legal Authority) and subsequently appoints a temporary administration, which temporarily limits or revokes the former management’s powers (Mokeeva and Popova 2020). In Otkritie’s case, the temporary administration initially consisted of CBR employees (CBR 2017a) before the CBR transferred the responsibilities of the temporary administration to the FBSC AMC in November 2017 (also largely CBR employees) (CBR 2017b; CBR 2017g).

The temporary administration’s primary responsibilities are to restore the bank’s solvency, “create an efficient managerial mechanism, eliminate revealed violations, and take other measures to” improve the bank’s health (Mokeeva and Popova 2020, 13).

After the temporary administration audits the bank’s financials and makes an assessment on the allocation of additional funds, the CBR takes over at least 75% of the bank’s share capital, followed by the appointment of permanent management bodies (Mokeeva and Popova 2020). As noted, the CBR administers funds for restructuring through the FBSC, the assets of which are managed in trust by the FBSC AMC (Mokeeva and Popova 2020).

The CBR’s chief auditor assessed the operations of the FBSC, which administered Otkritie’s resolution under direction from the CBR’s board of directors (CBR 2019; Russian Federation 2002a, arts. 25, 46). The National Financial Board appointed the CBR’s chief auditor, who was directly accountable to the CBR chairman (Russian Federation 2002a, arts. 13, 76, 95). The National Financial Board was composed of 12 members, which, in addition to the CBR chairman, included: two delegates from the Federation Council, three from the State Duma, three from the Russian president, and three from the Russian government (Russian Federation 2002a, art. 12). The chief auditor assessed the efficiency of the FBSC’s resolution operations along four criteria:

• The size of the financial assistance (that is, liquidity provision) provided to ensure the continuity of operations compared to the estimated economic damage from a bankruptcy scenario;
• The adequacy of funding utilization in recapitalizations for the recovery of financial position indicators;
• The efficiency of funding utilization by the permanent management bodies (of recapitalized banks) until the bank’s sale, as well as the handling of noncore/bad assets; and
• The efficiency of the sale of resolved banks’ shares to third-party investors, given market conditions (CBR 2019).

Regarding the first and second points, as of January 1, 2018, the CBR estimated the economic cost of Otkritie’s bankruptcy would have been more than RUR 1 trillion, as compared the rescue cost of RUR 836.2 billion (RUR 456.2 billion capital injection and RUR 380 billion liquidity support) (CBR 2018c). As an alternative to bankruptcy, the CBR estimated that the cost of Otkritie’s resolution under the old mechanism (with a 10-year rehabilitation loan through the DIA) would have been approximately double the RUR 456.2 billion capital injection (CBR 2018c).

The CBR issued press releases to communicate major decisions with respect to Otkritie’s resolution. The content of the press releases did not provide much detail on the specifics of the resolution, with more detailed information being provided via media interviews and similar press correspondence. For instance, when announcing the bailout of Otkritie, the CBR published a press release simply stating that it would provide “financial support to [Otkritie] and guarantee the continuity of operations” through the newly created FBSC without a moratorium on payments or a bail-in of creditors, additionally noting the appointment of a temporary administration for the bank (CBR 2017d). The same day, CBR Deputy Chair Tulin communicated to the press a more detailed explanation of the new resolution mechanism, resolution timeline, and recapitalization plan, among other relevant conditions (Dementyeva et al. 2017).

The CBR’s initial announcement of the Otkritie intervention was neutral in tone and did not indicate the cause of the bank’s distress (Lokshina, Gaidev, and Polyakova 2017). Weeks later, on September 14, CBR Governor Nabiullina addressed the situation in more detail, this time stating that Otkritie had engaged in excessive risk taking and implying that Otkritie’s purchase of 2030 Eurobonds (dollar-denominated Russian sovereign debt), of which Otkritie owned the majority issuance, enabled the bank to manipulate the bond’s market price and mask the bank’s capital hole (Nabiullina 2017). Nabiullina also stated that the CBR planned to legally challenge the payment of executive bonuses for the first half of 2017, just before Otkritie’s collapse. In the same speech, Nabiullina justified Otkritie’s rescue, emphasizing the bank’s systemic importance, strong integration into the Russian financial system, and viable banking model, in juxtaposition to Yugra Bank, which the CBR had allowed to fail (Nabiullina 2017).

The initial news of the CBR’s intervention was received positively by the market with shares in the Moscow stock exchange’s financial sector index rising 2.2% and Otkritie’s large shareholder, VTB, up 8%, after several days of repeated losses (Ostroukh, Garasyuta, and Kobzeva 2017).

The CBR funded Otkritie’s resolution including recapitalizations and loans (deposits) through allocations from the CBR’s FBSC (ultimately, through the CBR’s creation of reserves) (Mokeeva and Popova 2020). The CBR injected capital of RUR 498.9 billion through the purchase of newly issued ordinary shares in two separate rounds (CBR 2019). In December 2017, the CBR injected RUR 456.2 billion: RUR 189.1 billion to cover the capital deficit, RUR 182 billion for new capital to the bank, and the remainder was allocated for financial assistance to select subsidiaries of Otkritie’s parent company (Rosgosstrakh insurance company and nonstate pension funds) (CBR 2017h). In June 2018, the CBR injected a second and final round of capital in Otkritie amounting to RUR 42.7 billion for financial support to various subsidiaries to compensate for the write-downs on claims between the entities (CBR 2018b).

The CBR also extended loans to Otkritie, amounting to RUR 621.5 billion and RUR 174 billion outstanding by the end of 2017 and 2018, respectively (Otkritie 2018b; Otkritie 2019). Of the RUR 621.5 billion, RUR 561.5 billion came in the form of CBR deposits (Otkritie 2019).

For the creation in 2017 of the FBSC AMC, which managed the resolution assets of Otkritie, the CBR contributed RUR 1.5 billion in capital, for full ownership (CBR 2019).

The CBR’s resolution of Otkritie and subsequent restructuring constituted the first use of the CBR’s Fund for Banking Sector Consolidation, the new resolution mechanism established on May 2, 2017—coinciding with the passage of amendments to the Bankruptcy Law (Mokeeva and Popova 2020). The FBSC was a newly created subdivision of the CBR. During the resolution process, the CBR would transfer acquired assets (that is, bank shares) in trust to the separate limited liability company—the FBSC Asset Management Company—in which the CBR held 100% ownership. Thanks to the legal amendments, the new mechanism enabled the CBR to participate directly in the capital of Otkritie and other banks, in contrast to Russia’s historic, lending-based approach to bankruptcy, wherein the Deposit Insurance Agency—largely funded by the CBR—would extend a cheap, long-term loan to another investor willing to take over the bank in resolution (Fitzgeorge-Parker 2017; Karpova and Kruglikova 2018).

Toward the end of August 2017, after Otkritie received substantial CBR liquidity support (including unsecured), its shareholders requested that the CBR intervene using the new FBSC (Interfax 2017a). Although at least one other private bank volunteered to participate in Otkritie’s bailout under the old resolution scheme (that is, by receiving a loan from the CBR), the CBR opted for the new scheme by directly recapitalizing the bank (Dementyeva et al. 2017; Interfax 2020). The CBR’s motivation for using the FBSC was to avoid the exorbitant costs and multiyear resolution process associated with the older lending-based mechanism (CBR 2018c).

On August 30, 2017, the CBR took the first step in the resolution of Otkritie by appointing a provisional administration, largely composed of CBR employees (CBR 2018c; Otkritie 2018a; WPS USA 2017b). While the provisional administration audited Otkritie’s financials to determine its capital needs, the CBR guaranteed the continuity of Otkritie’s operations by extending loans and placing deposits at Otkritie using the FBSC (CBR 2018c). In the process of the audit, Otkritie revealed negative capital of RUR 188.9 billion on October 1, 2017, which grew to RUR 300 billion as of November 1, 2017 (Interfax 2017b; Seddon 2017f; WPS 2017b). Owing to the capital shortfall, by the end of September 2017, the CBR announced its intention to bail-in Otkritie’s subordinated debt. as a prerequisite to recapitalizing the bank (Fojcik 2017a; Interfax 2017b). On November 29, 2017, following the passage of additional bankruptcy amendments, which expanded the powers of the provisional administration of a bank in resolution to enable bail-in, the CBR transferred the powers of the provisional administration to the FBSC AMC. On November 30, 2017, the new provisional administration wrote down authorized capital to RUR 1, and in December, the CBR recapitalized Otkritie by purchasing newly issued shares for RUR 456.2 billion (99.9% of the bank’s equity) (Otkritie 2018a). Of the RUR 456.2 billion, RUR 189.1 billion covered the capital deficit, RUR 182 billion provided new capital to the bank, and the remainder was allocated for financial assistance to select subsidiaries of Otkritie’s parent company (Rosgosstrakh insurance company and nonstate pension funds) (CBR 2017h).

The recapitalization aimed for Otkritie to meet regulatory capital requirements, and in December 2017, the work of the temporary administration ceased with the appointment of new permanent management (CBR 2017h; Otkritie 2018a). By January 1, 2018, Otkritie did not meet regulatory capital requirements, and on January 19, 2018, the CBR decided to continue implementing resolution measures (Otkritie 2018a).

The CBR injected a further RUR 42.7 billion into Otkritie in June 2018, to be used to extend financial support to various subsidiaries to compensate for the write-downs on claims between the entities (CBR 2018b).

Following Otkritie’s bailout, the CBR also intervened in bailing out several other banks: B&N in September 2017, Promsvyazbank in December 2017, Asia-Pacific Bank in April 2018, Moscow Industrial Bank in January 2019, and Vokbank in April 2019 (Interfax 2019). These bailouts began with emergency liquidity support to guarantee the continuity of operations, followed by recapitalizations (nationalizations) (CBR 2017f; CBR 2018c).

In the case of B&N Bank, the CBR first recapitalized the bank in March 2018, by purchasing RUR 56.9 billion of newly issued shares, constituting a 99.9% stake (CBR 2018a; CBR 2018c; CBR 2019). At the same time, the CBR announced the merger of B&N with Otkritie, which was finalized on January 1, 2019, following the conversion of B&N’s shares into Otkritie’s (CBR 2018a; CBR 2019). The CBR also announced the creation of a bad bank, which they called a noncore asset bank, through a merger of Trust Bank (subsidiary of Otkritie) and Rost Bank (subsidiary of B&N), both of which were acquired by their respective parent companies under the old resolution framework (that is, through long-term loans from the CBR) (CBR 2019; Interfax 2018; Seddon 2018). Previously, in August 2017, Otkritie acquired a 99.9% stake in Trust Bank for roughly RUR 10 million while Trust Bank had RUR 397 billion in assets and RUR 501 billion in liabilities (Otkritie 2018a). Otkritie lost control of Trust Bank in March 2018 when the CBR took over and nationalized Trust (Otkritie 2018a).

The merger of Trust and Rost on July 2, 2018, established the bad bank (Trust NAB) (National Bank Trust PJSC 2019; Otkritie 2018b). On July 30, 2018, the CBR decided to restructure Otkritie by establishing a bridge bank for its noncore assets, Bank Otkritie Special JSC, which would subsequently merge with the bad bank in November 2018 (Otkritie 2018b). According to one report, these assets amounted to about RUR 438 billion (Fojcik 2018b).

In July 2019, the CBR completed its restructuring and resolution measures for Otkritie, with the bank having met its rehabilitation targets. In 2019, Otkritie paid dividends of RUR 2 billion for 2018. Thereafter, the CBR developed a plan to divest its stake in Otkritie (CBR 2020).

In the initial announcement on August 29, the CBR said that creditors would not be bailed in as part of the rehabilitation of Otkritie Bank (CBR 2017d).  Under Russia’s Bankruptcy Law, a recapitalization from the CBR required it to take over at least 75% of the bank’s share capital (Mokeeva and Popova 2020). Toward the end of September, the CBR’s temporary administration discovered a capital hole in Otkritie’s balance sheet (amounting to RUR 188.9 billion as of October 1, 2017), and the CBR moved to bail in subordinated creditors and write down equity to RUR 1, a prerequisite for the recapitalization (Astapenko 2017; Interfax 2017b; WPS USA 2017b). After the passage of a new amendment to the Bankruptcy Law in November 2017, which expanded the temporary administration’s bail-in powers, the temporary administration promptly bailed in RUR 160 billion of subordinated debt and wrote down share capital to RUR 1 (Fojcik 2017b). Following the CBR’s recapitalization in December 2017, the CBR owned 99.9% of Otkritie’s ordinary shares (CBR 2018c).

Before bailing in subordinated liabilities, Otkritie, under the supervision of the FBSC, repaid some subordinated loans of RUR 6.9 billion (due in 2019) to state-owned Vnesheconombank, the proceeds of which were transferred to the Russian National Wealth Fund (Fojcik 2017b).

When announcing the bailout of Otkritie, the CBR noted that it would not impose a moratorium on payments to depositors and other clients (CBR 2017d). Historically in Russia, a moratorium on payments accompanies the appointment of a temporary administration (the beginning of the bank’s resolution process) (Dementyeva et al. 2017). Following the initial resolution announcement, CBR Deputy Chair Tulin said that the CBR did not expect the bailout to cause contagion, noting that if the CBR had imposed a moratorium on satisfying the bank’s obligations, there would be such risks (Dementyeva et al. 2017).

In May 2018, the CBR communicated a plan to transfer RUR 2 trillion of bad assets from banks taken over by the FBSC into Trust NAB—a new noncore asset bank, or bad bank, created from Otkritie’s former subsidiary, Trust Bank (Raisky and Dementieva 2018). The RUR 2 trillion bad assets comprised RUR 539 billion from Otkritie, RUR 332 billion from Trust, RUR 139 billion from B&N, RUR 745 billion from Rost, and RUR 315 billion from Promsvyazbank and AVB bank (Raisky and Dementieva 2018). The creation of Trust NAB was completed in July 2018, and the CBR’s FBSC held a 97% stake in the bad bank with the remainder being owned by Otkritie (2%) and the Russian Direct Investment Fund (1%) (Fojcik 2018a). Two of Otkritie’s board members were each selected to lead the process of establishing Trust NAB and its ongoing operations, respectively (Fojcik 2018a; Raisky and Dementieva 2018).

The CBR decided that Otkritie would restructure by spinning off its bad assets, through the creation of a bridge bank, Bank Otkritie Special JSC, which would hold a banking license for one day before merging with Trust NAB.^FAccording to one news article, the volume of assets Otkritie contributed to Trust NAB was RUR 438 billion (Usov 2019). The reason for this unconventional restructuring mechanism was to bypass required tax payments in the transfer of assets (Raisky and Dementieva 2018). Under the Russian tax code, absent a court decision, nonperforming loans cannot be transferred for free or for a symbolic amount, and loans related to former owners cannot be discounted (Raisky and Dementieva 2018).

Pursuant to the Bankruptcy Law, the CBR appointed a provisional administration to run Otkritie Bank for six months, while suspending the powers of Otkritie’s management (CBR 2017a; CBR 2017d). The CBR appointed the deputy director of the CBR’s financial resolution department to chair the provisional administration followed by two deputy chairs, the director of the CBR’s banking supervision department, and one official from the FBSC (CBR 2017a). The remaining staff of the provisional administration included roughly thirty other CBR employees (CBR 2017a). Under the Bankruptcy Law, the term of the provisional administration, appointed by the CBR, could not exceed six months and if the conditions for the appointment of the provisional administration remained, the provisional administration would request the CBR to revoke the bank’s license. On December 21, 2017, the FBSC AMC handed over administrative powers to newly created, permanent management bodies, with the CBR forming Otkritie’s supervisory board. The new supervisory board included two CBR officials, the deputy finance minister, and representatives from the Moscow Exchange, UBS, and the European Bank for Reconstruction and Development (Prime News 2017c). The supervisory board subsequently appointed a new management board, with Mikhail Zadornov as CEO of Otkritie, effective January 1, 2018 (Otkritie 2018a). Zadornov served as the Russian finance minister during the 1998 ruble crises and founded VTB24, a retail bank acquired by VTB (Seddon 2017e).

Following the appointment of the provisional administration, various powers of the bank’s existing managing bodies were suspended, and rights of the bank’s founders (participants) associated with participation in its authorized capital (that is, convening shareholder meetings) were waived  (Russian Federation 2002d, art. 189.34).

As part of resolution, the CBR terminated Otkritie’s liabilities to executive employees (CBR 2018c). Under the Bankruptcy Law, the termination of the bank’s obligations to executive employees (mentioned in Article 189.49, paragraph 12–4) takes place on the day of the approval of the CBR’s plan to participate in bankruptcy prevention of the bank. Such obligations do not include payroll contracts (excluding bonuses and other incentive compensation) (Russian Federation 2002d, art. 189.49).

Pursuant to Russia’s Bankruptcy Law, beginning once the CBR demands a bank enter into resolution (after satisfying the bankruptcy prevention conditions) until receiving permission from the CBR, the bank is prohibited from making decisions related to the distribution of profits to its founders,  payment or announcement of dividends, and share repurchases, if these decisions lead to noncompliance in the CBR’s mandatory ratios (Russian Federation 2002d, art. 189.11). If the persons controlling the bank are found responsible for its bankruptcy, they are held responsible for subsidiary liabilities in the amount equal to the unpaid creditors (Russian Federation 2002d, arts. 61 and 189.23).

Our research did not reveal cross-border cooperation.

The CBR highlighted certain conditions for selling shares in the banks it rescued, including Otkritie: the buyers would be private, nonstate companies and exclude former shareholders or controlling parties; and the sales would not create monopolies in certain market sectors (Interfax 2019). Ultimately, the CBR decided to sell Otkritie to state-owned VTB Bank in December 2022 (CBR 2022). See Key Design Decision No. 12, Treatment of Board and Management, for conditions on executive compensation and dividends for Otkritie during resolution. 

The CBR’s initial plan did not specify an exit date but estimated the rehabilitation would take six to eight months divided into two stages. In the first stage, the CBR would appoint a provisional administration, assess Otkritie’s financials, and determine the level of necessary capitalization and bail-in measures. In the second stage, the CBR would recapitalize the bank and appoint new management (Dementyeva et al. 2017; WPS USA 2017b). The CBR intended to eventually sell Otkritie back to the market, with CBR Governor Nabiullina stating, “We do not seek to increase the state’s share in the banking sector” (Nabiullina 2017).

Toward the end of September 2017, the CBR said that it planned to sell Otkritie (and B&N Bank) in two years, depending on market conditions (Prime News 2017a). In 2018, the CBR decided to restructure Otkritie and merged it with B&N Bank in January 2019 (Fojcik 2019). By December 2018, Otkritie had returned all its borrowed CBR funds (WPS USA 2018). The CBR completed the resolution of Otkritie in July 2019 (CBR 2020). In December 2019, the CBR stated that it aimed to sell Otkritie in 2021, beginning with an initial public offering (IPO) of 20–25% of its shares (Interfax 2019).

However, owing to market conditions at that time, the CBR could not sell Otkritie at IPO and opted to sell the bank to state-owned VTB Bank. In December 2022, the CBR sold 100% of its stake in Otkritie to VTB Bank for RUR 340 billion. The passage of a new law in March 2022 enabled the CBR to sell shares in Otkritie at the market value, as estimated by an independent appraiser at RUR 328 billion to RUR 374 billion. VTB paid RUR 233.1 billion in cash and RUR 106.9 billion in federal government bonds (CBR 2022).