Bizness Lounge: Cold War Banker to Putin Billionaires Walks Sanction Wire

By Irina Reznik and Anna Baraulina

When he’s not cruising the streets of Austria in his gray Tesla Model S, Andrey Akimov can often be found behind a desk on the seventh floor of a nondescript office building just across the Moskva River from the Kremlin.
Two bullet-proof doors and one small sign are the only clues that this is the control center of a financier who’s helped turn some of Vladimir Putin’s closest allies into multibillionaires. For a man who honed his trade in the hushed back rooms of Vienna and Zurich during the Cold War and who is now, as friends say, the most secretive banker in a country run by a former spy, this is how it should be.
While Akimov, 61, hasn’t avoided sanctions against the lender he’s run for a dozen years, state-controlled OAO Gazprombank, Russia’s third largest, he has not
been singled out personally. By contrast, billionaire Yuri Kovalchuk, the largest shareholder of Bank Rossiya, the 16th biggest, was blacklisted by the U.S. in its first round of penalties over the Ukraine conflict in March for being what the Treasury called a “cashier” for Putin. Akimov, who’s never appeared on a global rich list, owns about 0.2 percent of the bank, equal to $1.7 million of shareholder equity, company filings show.

Power Broker

Akimov occupies a key position in Putin’s intricate power system and the fact that few people know it is a tribute to his skill as a behind-the-scenes broker, said UBS AG (UBSN) Russia Chairman Rair Simonyan, who has known Akimov for decades. Simonyan, 67, joined UBS in January, after running Morgan Stanley (MS)’s Moscow office for 14 years and working as an adviser for eight months to OAO Rosneft (ROSN) Chief Executive Officer Igor Sechin, who was added to the U.S. blacklist in April.
“Andrey is able to maintain professional relationships with everyone in Putin’s inner circle and beyond, even though some of them won’t even talk to each other,” Simonyan said in an interview in Moscow. “These people accept his mediation, regardless of their attitudes toward each other.”
Akimov, a fluent speaker of English and, like Putin, German, has never given a media interview, according to Gazprombank’s press service. Putin’s spokesman, Dmitry Peskov, declined to comment on the president’s relationship with Akimov.
“Andrey is a very, very secretive man, even for a banker,” Simonyan said. “And Gazprombank is a very Russian bank. Foreigners wouldn’t understand it.”
When Akimov took over Gazprombank in 2002, it was little more than a “piggy bank” for managers of the world’s largest gas producer, with less than $3.8 billion of assets, Simonyan said. Now it has $96 billion.

‘Pressured Profitability’

Akimov’s deputy, Alan Vaksman, said Gazprombank is focused on corporate lending, project finance and equity investments, making it more like Goldman Sachs Group Inc. (GS) than a typical “high-street bank.” By catering mostly to large companies, the bank has been able to mitigate the impact of sanctions by attracting enough deposits to meet more than 70 percent of its funding needs while building a “substantial” buffer of about 400 billion rubles ($9.6 billion) of liquid assets, he said.
“Sanctions may slow the bank’s growth, but they won’t lead to collapse,” Vaksman said in an interview.
Still, with penalties in place and the economy slowing, lenders including Gazprombank will face “deteriorating asset quality” and “pressured profitability,” said Natalia Yalovskaya, Standard & Poor’s lead analyst for Russian banks.

‘Extraordinary Support’

“Gazprombank, which focuses on lending to large companies, is less diversified than Sberbank and that poses potentially greater risks when the economy is on the verge of recession, like now,” she said by phone from London. OAO Sberbank (SBER), the country’s largest bank, said today it filed a legal challenge against the European Union over the sanctions.
S&P puts Gazprombank’s “stand-alone” credit profile at BB, though its long-term rating is two steps higher, BBB-, the lowest investment grade. This reflects “our expectation of extraordinary government support in case of stress,” the ratings company said Aug. 11.
Fitch Ratings Ltd. says Gazprombank, which it rates BBB-, one step below Russia’s government and the lowest investment grade, has “systemic importance” to the economy. The bank, a specialist in complicated mergers and acquisitions for itself and clients, is also integral to Putin’s brand of governance. Its media arm, the largest in Russia, is a major cheerleader of the president’s policies through outlets such as television broadcaster NTV and the Izvestia newspaper.

Khodorkovsky, Yukos

In 2006, Gazprombank helped Rosneft, where Sechin was chairman, fund the state-run crude producer’s takeover of most of Mikhail Khodorkovsky’s Yukos Oil Co. by buying a third of the 14.8 percent stake offered in Rosneft’s $10.7 billion public offering, the country’s biggest ever.
Khodorkovsky was in jail for fraud and tax evasion at the time and Yukos was suing the Russian government in various jurisdictions for confiscating its assets, most of which Rosneft acquired at forced auctions. The U.S. and the European Union protested the prosecution of Khodorkovsky, a Putin critic, and the dismantling of Yukos as a political attack. The former billionaire, who maintains his innocence, moved to Switzerland after being pardoned last year.
To help Rosneft sell near the top of its price range, Gazprombank bought $3.5 billion of shares in the IPO and then resold them to clients, a service that earned it less than $1 million in fees, a fraction of the $128 million total, two people familiar with the lender’s finances said. Gazprombank’s press service declined to comment on its role in the sale.

‘Remarkable’ Bailout

During the financial crisis in 2008, when Gazprombank posted a loss of 81 billion rubles, mainly due to bad currency bets, it needed a “remarkable” 580 billion rubles of liquidity injections from the central bank, Fitch analyst Roman Kornev said. Bigger competitors Sberbank and VTB Group required 309 billion and 686 billion rubles, respectively.
Gazprombank converted most of the sum to dollars, which propelled the bank’s return to profit in 2009. The U.S. currency gained 16 percent against the ruble in the first quarter alone, helping the bank repay the emergency loans while posting a profit of 65 billion rubles for the year, Kornev said.
“Gazprombank can sustain major losses because of its special status,” said Maxim Osadchy, head of analysis at Corporate Finance Bank in Moscow. “It makes use of all the privileges reserved for state banks.”

Sechin, Timchenko

Akimov sits on the boards of two of Gazprombank’s biggest clients, according to two people with knowledge of the bank’s lending: Gazprom and Rosneftegaz, a state company that holds shares in Gazprom and Rosneft and receives billions of dollars a year in dividends. These and other companies run by people close to Putin, including pipeline operator OAO Transneft, state development bank VEB and oil producer OAO Surgutneftegas, all have several billion dollars on deposit at Gazprombank, the people said. Transneft, VEB and Surgut all declined to comment.
The bank has relatively few individual clients, about 4 million, compared with Sberbank’s 110 million and VTB’s 25 million, and almost all of them are employees of its clients, including more than 300,000 Gazprom workers, according to the people. Gazprombank itself has a workforce of 13,000.
With U.S. and European markets closed to the company because of sanctions, $4.3 billion of foreign debt coming due in the next two years and several major clients in legal trouble, there’s no shortage of problems facing Akimov.

Firtash, Evtushenkov

The bank’s biggest borrowers, the people said, include companies owned or run by four men on the blacklist: Sechin and the billionaires Gennady Timchenko, Arkady Rotenberg and his brother Boris Rotenberg. Another billionaire client, Ukrainian Dmitry Firtash, is awaiting an extradition hearing in Vienna, where he was arrested on U.S. bribery charges before paying a record 125 million-euro ($159 million) bail. A fifth, Vladimir Evtushenkov, is under house arrest in Moscow as prosecutors seek to nationalize his OAO Bashneft oil company.
Akimov would have been content avoiding such headaches and running his investment business from Vienna if it hadn’t been for the offer he got a dozen years ago that no patriotic Russian could’ve refused, said another longtime friend, Oleg Ozhereliev, who was an adviser to Mikhail Gorbachev when the Soviet Union disbanded in 1991 and is now retired.
Gazprom clearly needed a man with Akimov’s skills and contacts to transform Gazprombank into a “world-class lender with a wider range of clients,” said Ozhereliev, 73. “It was a great opportunity. His success has been astonishing.”

Kennedy Meeting

Ozhereliev, Akimov and Simonyan were part of a small group of financial experts Gorbachev dispatched to Washington in search of investments just months before the Soviet empire fell. They spent several weeks in the U.S. meeting a variety of officials and bankers, according to Ozhereliev.
Akimov was very interested in the inner workings of the U.S. political system and was impressed by how much senators such as Ted Kennedy knew about the world, Ozhereliev said. Akimov still keeps a photo of their meeting with Kennedy.
“That trip, which Akimov organized, looked like Russia’s first non-deal road show,” Simonyan said. They left the U.S. empty-handed, though they developed ties that would later lead to U.S. investments in Russia, according to Simonyan.
Like so many of Russia’s most powerful men, Akimov’s relationship with Putin dates back to the president’s time in the St. Petersburg mayor’s office in the early 1990s. Both men were born in Leningrad, Putin in 1952 and Akimov the following year, and served the Soviet cause in Europe in the 1980s -- Akimov in banking and Putin in espionage. Yet they didn’t meet until they were in their late 30s, according to Ozhereliev.

Soviet Network

Akimov’s father, a military engineer, was transferred to Moscow shortly after he was born, so he grew up in the capital. After graduating from an elite high school that emphasized English, he entered the Moscow Institute of Finance, where he earned a degree in economics in 1974, just as the inefficiencies of the command economy were metastasizing into what became known as the Brezhnev stagnation.
After graduation, he was assigned to the Soviet bank of foreign trade now known as VEB, where he would work for 11 years, a period in which the Soviets, desperate for hard currency, started borrowing heavily from Europe, particularly West Germany, and became increasingly dependent on U.S. grain.
In 1985, when Gorbachev became the third Soviet leader in less than two years, Akimov was dispatched to Switzerland as deputy director of the bank’s Zurich office, a highly coveted overseas post with perks unmatched back home.
In 1987, the year Ronald Reagan urged Gorbachev to “tear down this wall,” Akimov was promoted to head of Donau Bank in Vienna, part of a Soviet network charged with raising hard currency through commodity sales and lines of credit.

Politburo Permission

Two years later, when the Berlin Wall actually did fall, he got caught up in the revolutionary spirit and was fired for it. The reason: he stopped sending the bulk of his salary back to the Communist Party in Moscow, two people familiar with the matter said. While the policy was to pay a wage commensurate with foreign peers, about $10,000 a month in Akimov’s case, the party forbade overseas workers from earning more than the local ambassador, then about $1,500 a month.
“Akimov challenged the Soviet system,” Simonyan said. “He belonged to the cream of Soviet society, enjoying a very high standard of living compared with most people at home and he knew he would lose it all.”
In early 1991, Akimov asked for, and got, permission from the Politburo to set up a company in Vienna to facilitate trade with Europe, according to five people familiar with the matter. His junior partner in the new company, IMAG GmbH, was Alexander Medvedev, who now runs Gazprom’s export arm and isn’t related to Russia’s premier, Dmitry Medvedev.

Putin’s Boss

Within a year, though, there was no longer a Politburo to report to, so Akimov was on his own. Using the $4 million he made personally trading East German debt at Donau Bank, Akimov moved IMAG’s headquarters to a converted horse stable in central Vienna, the people said. Painted on the wall behind his desk was the name of the previous occupant: Dashing. He kept it.
It was about this time that Putin, as head of foreign relations for St. Petersburg, got the chance to evaluate Akimov’s ability to solve difficult problems, said Ozhereliev, who was a professor at the university where Putin’s boss, Mayor Anatoly Sobchak, once taught.
IMAG’s clients included the future billionaire Timchenko and his partners in an oil trader called Kinex, which held a highly coveted export license. Kinex had three problems. It needed its license renewed in Moscow, quotas from Putin’s office and $1 billion to upgrade Kirishi, the refinery that supplied the products it traded, according to Ozhereliev, who ran IMAG’s office in Moscow at the time.

Gunvor, IMAG

“To help Kirishi, IMAG had to approach Sobchak, who redirected us to his deputy, Vladimir Putin,” Ozhereliev said.
Timchenko’s partner in Kinex, Andrey Katkov, said IMAG succeeded on all three fronts, including the financing, which it got foreign banks to organize.
“Akimov and his partner Medvedev were among the few people who had worked in Europe and had experience with western banking,” Katkov said. “Akimov’s knowledge helped us tremendously, and not just with the financing.”
That was the beginning of Akimov’s mutually beneficial relationship with Timchenko, who would soon start a company that would grow into Gunvor, now one of the world’s largest oil traders. In 2008, as Putin made way for Dmitry Medvedev to serve as president for a term, Akimov started laying the groundwork for a series of transactions that would make two of his clients, and Gazprombank, billions of dollars.

Gazprom Squeeze

OAO Novatek (NVTK), an independent gas producer founded by a former engineer, Leonid Mikhelson, was being squeezed by Gazprom, which owned all the pipelines and wasn’t interested in helping its London-listed competitor, according to Alexander Ryazanov, Gazprom’s deputy CEO at the time. So Gazprom forced Novatek to sell it gas at below-market rates, Ryazanov said.
Akimov convinced Mikhelson that he needed a partner with political connections to solve this problem, two people familiar with the matter said. Mikhelson agreed and hired Akimov to structure deals that resulted in Timchenko eventually gaining 23 percent of the company, the people said.
“It was a very good deal,” Ryazanov said. “It made Timchenko an official billionaire.”
Timchenko said through his press service that it was his idea alone to invest in Novatek. Mikhelson, through his press service, declined to comment.

Russian Style

With Timchenko, one of Putin’s closest allies, on board, Novatek’s shares jumped eightfold from 2009 through July 2011 as Gazprom began cooperating with, and ceding large industrial clients to, its smaller rival as Akimov helped double Novatek’s reserves and output. Akimov did this by giving Novatek loans to buy assets from Gazprombank that the lender had acquired from businesses tied to former Gazprom managers.
Novatek now has a market value of about $30 billion, triple what it was before Timchenko became an owner, even after falling by more than a third from its 2011 peak.
This is how business is done in Russia and sanctions won’t change that, according to Corporate Finance Bank’s Osadchy.
“On the contrary, the increasing isolation from the global economy has made skillful financiers like Akimov more valuable to the president than ever,” Osadchy said.

Friday 24 October 2014

Cold War Banker to Putin Billionaires Walks Sanction Wire