“Sense Bank”: nationalization or bankruptcy?
Introduced in Ukraine and Europe, sanctions against Russian businessman Mikhail Fridman complicate the situation of his business assets in our country. First of all, we are talking about Sens Bank (formerly Alfa-Bank) and IC Alfa Insurance. There are not too many options – nationalization or bankruptcy, Focus writes.
Advisor to the head of the President's Office Mikhail Podolyak said in early December that the nationalization of Alfa-Bank (after the rebranding of Sens Bank) had already launched.
“Alfa-Bank has been rebranded. Today it is already Sense Bank. There are already procedures for nationalization, as such. The nationalization of Alfa-Bank will look different from PrivatBank, because there is a much smaller circle of individuals with deposits and so on,” Ukrinform quotes Podolyak’s statement.
At the same time, as of December 14, there was no official announcement of the transfer of shares in the bank of the Russian oligarch Mikhail Fridman to the Ministry of Finance of Ukraine. And the head of the board of the National Bank of Ukraine, Andriy Pyshny, in an interview with Forbes Ukraine, completely evaded answering a question regarding the fate of the bank.
“The NBU carefully monitors the solvency and liquidity of all banks. Our task is for the systemically important Alfa-Bank to function smoothly and stably, regardless of the composition of shareholders,” he said.
Nationalization operation. Under what circumstances will Sens Bank come under state control
As Focus wrote earlier, back in October, Alfa-Bank shareholders announced their readiness to capitalize the bank by $1 billion. The bank's shareholders also said that, in the event of a decision by the government or the National Bank on the need to transfer control in the bank to the state or another shareholder, they are ready to transfer its shares free of charge. However, according to the head of the NBU, Andriy Pyshny, the National Bank did not receive the relevant package of documents for the additional capitalization procedure from Alfa shareholders.
Today, taking into account the laws and regulations in force in Ukraine, sanctioned Russian beneficiaries can neither recapitalize the bank nor sell it to a new owner. “According to the provisions of subparagraph 2 of paragraph 1 of the Resolution of the Cabinet of Ministers No. 187, a moratorium (ban) on the alienation of corporate rights of persons associated with the aggressor state is in force. The version of the Resolution of the Cabinet of Ministers No. 164 “Some issues of notaries in martial law”, in particular, states that if such a person applies for a notarial act, the notary refuses to perform it. Thus, today it is not considered possible to legally alienate corporate rights that now belong to individuals associated with the Russian Federation, ”commented Evgeny Artyukhov, senior partner at A.S.A Group.
Additional capitalization of Alfa-Bank “will be done after nationalization, because now, under sanctions, shareholders cannot transfer funds to the bank's capital
The nationalization of Mikhail Fridman's bank, according to experts interviewed by Focus, has actually been resolved. “In my opinion, the process of changing the ownership of Alfa-Bank/Sens Bank was launched on February 24, 2022, after the start of a full-scale aggression. It should not be so that something in Ukraine is owned by people who are subject to personal sanctions because of their proximity to the establishment of the aggressor country. During the war, there are very low chances to sell such a large bank by Ukrainian standards to any respectable strategic investor. Therefore, nationalization is indeed the easiest way to change the bank’s owners now,” said Yevhen Dubogryz, Associate Expert of CASE Ukraine. class=”wpg_image” title=”Sens Bank: nationalization or bankruptcy? ” width=”1088″ height=”683″ alt=”Sens Bank: nationalization or bankruptcy? Alfa Bank” />
“Sens Bank”: nationalization or bankruptcy?
Economist, member of the Society of Financial Analysts Vitaly Shapran recalled that in early October, the parliament adopted a special law that regulates the nationalization of systemically important banks, which include Sens Bank.
“The nationalization of the bank“ Sens” was launched along with the adoption of the relevant bill. But to complete it, a political decision is needed, whether such a decision has been made, I don’t know, ”the expert says.
The Law “On Amendments to the Tax Code of Ukraine and Certain Other Laws of Ukraine on the Peculiarities of Decommissioning a Systemically Important Bank from the Market under Martial Law” (Bill No. 8069) simplifies the procedure for transferring a systemically important bank to state ownership for the duration of martial law in the country. In particular, the document provides that the procedure for withdrawing a bank from the market is applied if the NBU decided to classify the bank as insolvent on the basis that “the bank did not fulfill its obligations to depositors and other creditors within the period established by the agreement or specified by the legislation of Ukraine due to for lack of funds.
That is, according to this law, Friedman's bank will be nationalized only after it is declared insolvent. But now, as experts say, there are no grounds for this – the bank works stably without risk for customers and the safety of their funds. But as soon as there is a problem with the fulfillment of the bank's obligations to customers, or the bank does not return the refinancing loan on time, the NBU will be able to immediately declare the bank insolvent and start the procedure for acquiring its shares by the Ministry of Finance for 1 hryvnia, as was the case with Privatbank.
In October the Verkhovna Rada adopted a special law for the nationalization of «Alfa-Bank» Photo: Rada.gov.ua
“In order for the state to nationalize a bank, it must first be declared insolvent. Only then will the state have the opportunity to enter the capital of the bank. There is another possibility – to buy a bank from its owners. But, in the case of Sens Bank, this is impossible for political reasons – it will be the purchase of an asset by the state from sanctioned persons. Consequently, the only way for the state to enter the capital of the bank is to declare it insolvent, and then either follow the analogy with the nationalization of Privatbank, or act in accordance with the norms of the draft law on the specifics of state participation in the withdrawal of systemically important banks from the market. The second option is if the bank is declared insolvent due to liquidity problems – for failure to fulfill obligations to depositors and customers,” explained Evgeny Dubogryz.
Without a license. What is the fate of the insurance company of Russian shareholders “Alfa Insurance”
In the financial sector, Alfa's shareholders in Ukraine also own a large insurance company, Alfa Insurance. In early December, the NBU suspended the license of this company to provide financial services. The company was given a year to correct the shortcomings – until December 5, 2023.
“These measures of influence were applied due to the non-compliance of companies with the requirements of the Regulations on licensing and registration of financial service providers and the conditions for their activities to provide financial services, approved by the Resolution of the Board of the National Bank of Ukraine dated December 24, 2021 No. 153 (as amended), namely requirements for the business reputation of financial service providers,” the National Bank noted.
On the same day, the NBU suspended the license of Vyacheslav Boguslayev, Motor Garant Insurance Company, and earlier in November, the National Bank recognized the reputation Boguslaev is not blameless because of his Russian citizenship.
Now the further activity of IC Alfa Insurance is a big question. “We have a situation where there is an owner who, perhaps, would like to get rid of the asset, but operations on shares are prohibited, since the owner of the company is a Russian citizen. It turns out a vicious circle. The license was suspended, they were given a year to correct it. And what can change in a year in the general approach to the assets of citizens from the aggressor country and the sanctions imposed on them?”, Vyacheslav Chernyakhovsky, head of the Insurance Business Association, comments on the situation with the Alfa license.
K «Alfa Insurance» according to the results of 2021, it was among the ten largest insurers in Ukraine [–] Photo: facebook.com/alfaic.ua
The very fact of a suspended license, however, does not yet mean a complete halt in the activities of the insurer. “Temporary revocation of a license to carry out activities for the provision of insurance services actually means the inability of the insurance company to conclude new insurance contracts. Since, according to the Constitution of Ukraine, the law does not have retroactive effect in time, all insurance contracts concluded by the insurance company before the loss of the license remain in force. Moreover, the insurance company does not need a license to service these contracts (damage assessment, insurance payments),” explained Igor Chudovsky, managing partner of Chudovsky and Partners Law Firm.
But the inability to enter into new of the agreement may negatively affect the financial condition of the insurance company, as Vyacheslav Chernyakhovsky said.
“The suspension of a license usually does not lead to the restoration of the company's activities – over time, it simply will not have money to pay for administrative and business expenses, when it is impossible to conclude new contracts and receive an influx of finance. The reserves will only be enough to pay for insurance events, but for this it will be necessary to drastically reduce all costs by firing almost all staff, abandon offices, sell property, etc.,” Vyacheslav Chernyakhovsky noted.
Now, taking into account the one year given to the company to “correct shortcomings” related to the reputation of the owners, we are probably talking about a potential change in the shareholder of the insurance company. “I think they will try to do what Alfa-Bank does. Or “replace” shareholders – transfer ownership of shares to someone against whom there are no sanctions yet. Because it is very difficult to sell such an asset – not “for show”, not “for the regulator”, but to sell it – now it is very difficult. Or repeat what they did in the bank – find a “trusted person”, formally independent, to whom to transfer control. But I don’t think that such actions will convince the regulator – new measures of influence were imposed precisely because of the shareholders, some reshuffles in management will not change anything even in the legal plane, ”said Evgeny Dubogryz. In his opinion, the NBU’s insurance company can return the Fridman’s license either after a change of owners, or in the event that sanctions are lifted from beneficial owners. “wpg_image” title=”Shareholders of Sens Bank and IC Alfa Insurance are under sanctions due to involvement in the Kremlin, which, of course, Friedman himself denies” width=”1088″ height=”729″ alt= “” />
Shareholders of «Sens Bank» and SK «Alfa-Insurance» are under sanctions due to involvement in the Kremlin, which, of course, Friedman himself denies
Vyacheslav Chernyakhovsky noted that the National Bank had an option to put a manager in Fridman’s company who would manage instead of a shareholder, as it has already been implemented in Sens Bank, where Bulgarian economist Simeon Dyankov makes decisions instead of Russian shareholders. The expert believes that if the NBU gave the insurance company a year to eliminate violations, then perhaps there is a calculation to find some kind of solution during this time.
“Such a long period – a whole year – speaks of that they can prepare some kind of solution for IC Alfa Insurance and IC Motor-Garant,” Chernyakhovsky believes.
If there is no decision regarding the change of ownership of IC Alfa Insurance is not found, the company will simply have to curtail its activities and leave the Ukrainian market.
“A number of government decisions require the application of profile sanctions to companies with a “Russian trace”, which also include: a ban on making payments and servicing the accounts of such companies by agent banks, suspending permits for the right to legal commercial activity, a thorough check of the commercial model and financial flows of such a company, often with the opening of criminal proceedings by law enforcement agencies, which provides for the seizure of assets and the prohibition of the company's freedom of operation. Under such conditions, the normal further activity of companies to which sanctions mechanisms have been applied does not seem possible, ”summed up Yevgeny Artyukhov.
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