Opening and Rosgosstrakh unite press release. Rosgosstrakh and Otkritie will create the largest private financial group. The tricky word “optimization”
The Otkritie and Rosgosstrakh groups have agreed to merge, three sources familiar with the progress of the upcoming transaction told Gazeta.Ru. The parties plan to carry out legal procedures related to the merger in 2017, and the integration will begin to have a real impact on business in 2018.
As a result of the merger, the main assets of the combined group are the Otkritie banking business, Insurance Company Rosgosstrakh and - will be controlled by Otkritie Holding. At the same time, it is planned to maintain both brands, notes one of the sources. “This is a logical decision. “Otkrytie has a very strong position in the insurance market, while Otkritie has a strong position in the banking and investment markets,” noted Gazeta.Ru’s interlocutor.
“The joint group will be among the leaders of the Russian financial market on a number of indicators, including the size of the business, customer base and infrastructure,” says an investment banker familiar with the details of the project about the preliminary assessment of the combined business.
The assets of the combined group will exceed 4 trillion rubles, the number of clients will be 50 million people. The regional network will have about 4 thousand points of sale, and the number of employees will be about 100 thousand.
Another important result mergers—increasing efficiency and reducing costs.
Representatives of Otkritie and Rosgosstrakh declined to comment on Sunday.
In early December, Gazeta.Ru sources spoke about a possible change of ownership at Rosgosstrakh, noting that the new owner of the company would be one of the largest Russian private banks.
Then Rosgosstrakh stated that this information was not true.
The main shareholder of Otkritie Holding is its founder (28.61%), the IFD-Kapital group (19.9%), the bank (9.99%), shareholders of the ICT group (9.82%), (7 .96%) and (6.67%). According to open sources, 52% of the shares of Rosgosstrakh belong to RGS Holding, 10.5% to RGS Assets, 6.7% to Savings Management (trustee of pension savings of NPFs), 5.33% to Aton”, no more than 5% belongs to VTB.
Otkritie tried to develop the insurance business since 2011, but subsequently decided to leave it, selling Otkritie Life Insurance to a subsidiary of RGS, Rosgosstrakh Life, in September 2016. In 2015, the group sold the universal insurer Otkritie Insurance to the structures of Alexander Kondratenkov, head of the Opora Rossii insurance commission (head of the Opora Rossii insurance commission), after which it was renamed Opora.
The exact distribution of shares in the new combined group will be determined after bilateral due diligence.
“While the parties have reached a top-level agreement on the merger, negotiations are ahead on specific conditions, so it is too early to talk about details. We can say with absolute certainty that Vadim Belyaev will remain the main shareholder of Otkritie Holding, and within the framework of the merger he will own a minority stake in the company,” says the source. According to him, there will be no other significant changes in the shareholder structure of Otkritie.
Otkritie and Rosgosstrakh expect to obtain many synergies when merging, a source close to one of the parties tells Gazeta.Ru. For example, Rosgosstrakh has a very large customer base, this information is useful for Otkritie’s retail banking business. In turn, Rosgosstrakh gets access to Otkritie’s digital developments - over the past two years the holding has become one of the leaders in the field remote services, launching the Tochka project and purchasing Rocketbank. The use of innovative services, taking into account the size of Rosgosstrakh’s client base and its geographical distribution, can have a significant effect, including in the form of savings, says an investment banker familiar with the project.
He also notes that the financial results of Rosgosstrakh will not be an obstacle to the merger. The company's net loss in the first half of the year amounted to 8.6 billion rubles. (about $140 million), which is two times higher than in 2015, notes S&P in comments. “This result is due to the peculiarities of the legislation on compulsory motor liability insurance, due to which the company had to incur significant expenses. However, amendments to the law on compulsory motor liability insurance, adopted in December in the first reading, radically change this situation, so in the future this pressure on the financial results of Rosgosstrakh will be leveled out,” the investment banker predicts.
He assesses the deal as positive not only for the participants, but also for the market as a whole. “There is an obvious trend in the market towards consolidation and enlargement. Realizing this, the shareholders of the two groups decided to combine their efforts and assets. This will increase the level of competition - the scale of the created business will allow it to compete on an equal footing, including with the largest state players.”
The main problem of all financial organizations, the liquidation or reorganization of which the Central Bank is currently involved in, was imbalances in corporate governance. First Deputy Chairman of the Central Bank Sergei Shvetsov spoke about this during one of the sessions of the International Financial Congress, citing as examples the recent cases of FC Otkritie Bank and Rosgosstrakh. In his opinion, the deplorable situation in both cases was led to by boards of directors working only for show, while in reality all decisions were made by shadow directors.
First Deputy Chairman of the Central Bank Sergei Shvetsov named the main reason for the collapse of large financial organizations that came under the control of the regulator as imbalances in corporate governance. “The Bank of Russia has a special unit that conducts an investigation if something out of the norm happens (in financial institutions). Maybe somewhere these are problems of credit policy, somewhere it’s lending to shareholders, somewhere it’s just stupidly stolen, but everywhere there is a defect in corporate governance,” he said during a speech at the International Financial Congress (quoted by RBC).
Mr. Shvetsov illustrated his words with two examples: the cases of FC Otkritie Bank and Rosgosstrakh. According to the first deputy chairman of the Central Bank, in both cases all strategic decisions were made by the shadow director, while the boards of directors existed “for show.”
According to him, the shadow director chose people “convenient” for himself to the board of directors. “In the case of Otkrytie, I think the board of directors was completely sure that the shareholder or the shareholder’s representative, that same shadow director, was responsible. And the board of directors was involved in compliance in terms of meeting the minimum requirements of the Moscow Exchange for the shares of Otkrytie PJSC to be on the quotation list. Neither the head of Otkrytie, nor the shareholder, nor the management perceived the board of directors not as a governing body, but as a kind of compliance from a regulatory point of view,” explained Mr. Shvetsov (quoted by TASS). According to him, he does not believe that ex-president bank and the head of the board of directors of Otkritie Holding, Ruben Aganbegyan, did not have the proper qualifications to understand his functions. “He understood perfectly well, but nevertheless he allowed it,” said Mr. Shvetsov. The practical activities of the board of directors of Otkritie were limited to absentee voting on interested-party transactions, writes TASS with reference to the deputy chairman of the supervisory board of the Moscow Exchange, a member of the current board of directors of the bank FC Otkritie, Andrei Golikov. “Over the past year, about 50 boards of directors were held, and two of them were in person,” he noted.
Bank FC Otkritie came under reorganization as part of a new financial recovery scheme at the end of August 2017. In January 2018, the process was completed, the bank moved from the department of the financial rehabilitation department of the Central Bank to the control of the department for supervision of systemically important credit organizations. As part of the bank's rehabilitation, the Central Bank bought an additional issue of FC Otkritie in the amount of 456.2 billion rubles. and provided the bank with 111 billion rubles. in the form of deposits. Mr. Aganbegyan was relieved of his post as president of the bank and removed from the board of directors of Otkritie Holding in September 2017. At the end of January 2018, he was appointed to the position of advisor to the general director of the investment company VEB Capital. In mid-May 2018, Mr. Aganbegyan was again approved as a candidate for the position of independent director in new line-up Board of Directors of Rostelecom (he has held this post for several years).
The insurance company Rosgosstrakh was included in the reorganization of the FC Otkritie bank in August 2017. In December of the same year, Mikhail Zadornov, who later headed the FC Otkritie bank, said that “theft reigned from top to bottom” at Rosgosstrakh; the company was implementing a business model that “was never aimed at bringing legal profit to shareholders " In April 2018, the Lefortovo Court of Moscow arrested the former vice-president of the company, Sergei Khachaturov, who is suspected of major embezzlement. Official complaints against to the former owner a major insurer, Daniil Khachaturov, has not yet been charged.
In October 2017, Mr. Shvetsov announced the Central Bank’s readiness to “reanimate” the bill on increasing the responsibility of managers of public companies, which was adopted in the first reading back in 2010.
Currently, it is still under consideration in the State Duma. The next step, according to him, should be the adoption of a law on the legalization of shadow directors. “We must radically increase the implementation of actual responsibility for the use of unfair practices. Only this can balance the advantages that unscrupulous players receive today. At the same time, it is very important to introduce the institution of “shadow director,” Mr. Shvetsov said then. According to him, it is nonsense for the Central Bank to include in its blacklist the wrong people who communicate with the regulator while the financial organization is still operating. “The shadow director must also bear responsibility, and not hide behind the people he hired,” noted Mr. Shvetsov.
The merger creates the country's largest private financial group. Control over it will go to Otkritie, and the main owner of Rosgosstrakh, Danil Khachaturov, will become a minority shareholder of the new holding. Experts agree that the deal is useful both for Rosgosstrakh, which will be able to attract additional capital, and for the entire Russian economy, which lacks successful examples of mergers in the banking sector.
RBC and Vedomosti wrote about the future merger of two major players in the banking and insurance markets. According to them, the initiator of the merger was Rosgosstrakh and Khachaturov personally. He was forced to take such a step by the difficult situation on the MTPL market and the need to attract new funds for business development. It is expected that the client base of the new structure, which is scheduled to appear in 2017, will be about 50 million people, and its assets will exceed four trillion rubles.
According to Vedomosti, the deal will not include the pension business of Rosgosstrakh - the non-state pension fund RGS. It is not yet clear whether RGS-Real Estate will join the merger. Now on its balance sheet there are 270 Rosgosstrakh offices and a debt of 28.7 billion rubles. Despite the fact that Otkritie will receive control over the future group, Rosgosstrakh will continue to develop and manage the insurance sector. It is also known that all participants in the united structure will continue to operate under their current brands.
Both parties hope that the merger will help them achieve synergy from combining the teams’ expertise and more: they are going to increase the client base thanks to the developments of Rosgosstrakh, which, in turn, expects to take advantage of the holding’s achievements in terms of remote services. Meanwhile, cooperation between Otkritie and Rosgosstrakh has been going on for several years. Among the shareholders of Otkrytie Bank there are structures associated with Rosgosstrakh: they own 8.7% of the credit institution, another 1% belongs directly to the insurance company, and 7.5% belongs to the trustees of the NPF RGS.
Despite this, Khachaturov did not immediately decide to unite with Otkritie. At first he tried to come to an agreement with Sberbank and VTB. The latter is one of the main shareholders of Otkritie (9.99%), and its first deputy chairman, Yuri Solovyov, last week, together with Khachaturov and co-owner of Otkritie Vadim Belyaev, met with the head of the Central Bank, Elvira Nabiullina. At the meeting, the future partners told the regulator about their plans and announced the start of the mutual due diligence procedure. As a result, both Sberbank and VTB refused to participate in the transaction directly, largely due to the depressing situation in the MTPL market, which still remains the main direction of Rosgosstrakh (the company recently accounted for 41% of all MTPL transactions in country, now - 25%).
This commitment to MTPL has already led to losses of 15.5 billion rubles in the first half of 2016 (this is twice as much as in the same period a year earlier). In this regard, the insurer announced in the fall its intention to raise an additional 46 billion rubles (about 20% of the authorized capital) through an additional issue. It was planned to hold it on the open market. In May last year, the Central Bank even suspended Rosgosstrakh’s license for compulsory motor liability insurance due to violations in the sale of policies. “The OSAGO segment is now really very unprofitable, and that is why Rosgosstrakh needs to attract additional capital. The company is a leader in this segment, including in those regions in which other insurers did not really want to work due to high unprofitability,” Alexey Bredikhin, director of the financial institutions rating group of the Analytical Credit Rating Agency (ACRA), told Profile.
In the summer, in the most problematic regions in terms of availability of compulsory motor insurance (with one insurer for the entire constituent entity of the Russian Federation), the Single Agent program began operating. It was launched by the Russian Union of Auto Insurers (RUA). According to the rules of the program, the insurer present in such a problem region is obliged to sell as an agent the policies of all RCA member companies (and the company whose policy will go to the car owner is determined randomly - by PTS number). Rosgosstrakh joined the program on the last day, when it was already threatened with sanctions from the RSA - up to the deprivation of its license for compulsory motor liability insurance. “Many technical, technological and procedural issues still remain open, but if a joint solution to all problems can be found, then the agent can become one of the effective tools for improving the situation in the OSAGO market,” Rosgosstrakh eventually admitted.
“The state is taking measures to stabilize the market, for example, the rule on the priority of compensation in kind. This should improve the financial performance of MTPL insurers. The process is still underway and is still being considered in the State Duma, but everyone hopes that it will be completed. Apparently, this is why the investor enters this company and provides it with resources that will allow it to survive a difficult period and restore its position in the future. So I can only evaluate the deal with Otkritie positively,” says Bredikhin.
Now Otkritie is one of the few financial groups in Russia without its own insurance business. However, this was not always the case. In 2011, Vadim Belyaev decided to develop this area and founded two companies at once within his financial group: Otkritie Insurance and separately, Otkritie Life Insurance. Subsequently, the businessman decided to get rid of both assets: Otkritie Insurance, which needed additional capitalization, was bought last year by one of the leaders of Opora Russia, Alexander Kondratenkov (who renamed the company Opora), and Otkritie Life Insurance was transferred to Rosgosstrakh in September "and its subsidiary "Rosgosstrakh Life".
Then Otkrytie CEO Ruben Aganbegyan said that the group decided to “focus on those segments of the financial market in which it occupies a leading position and has significant expertise.” “Despite the fact that Otkritie Life Insurance is showing profitable growth, the size of its business is significantly lower than that of market leaders. Therefore, Otkritie decided to change the format of its presence in this market: not to develop own business life insurance, and continue selling insurance products in the offices of Otkritie Bank on a commission basis.” Rosgosstrakh called the deal an opportunity to attract a professional team with a high-quality insurance portfolio for relatively little money.
Mergers of major players in the financial sector are an extremely rare phenomenon in Russia, says Jan Art, vice-president of the Rossiya Banks Association. “The main reason is the opacity and incomprehensibility of Russian business. In the banking sector it is high, but in business as a whole, alas, it is not. Therefore, each such transaction attracts special attention. And even among the few transactions, the absolute majority are not mergers, but acquisitions. We can still absorb each other, but we cannot unite and consolidate. Therefore, the actions of Otkritie against this background inspire respect. Here we are talking specifically about a merger, albeit with the dominant role of Otkritie. This is a very important example for the future of the Russian economy as a whole. The entire market will be watching the deal with interest, especially small banks, which we are constantly calling for to consolidate,” Art noted in an interview with Profile.
FC Otkritie Bank has begun preparations for a merger with Rosgosstrakh, having received the right to dispose of almost 20% of the insurer’s shares. This was done through the pledge of the latter’s shares as part of a repo transaction. Such an unconventional approach to structuring a deal can result in benefits for both parties, experts point out.
FC Otkritie Bank reported that on March 30 it increased its share in the authorized capital of Rosgosstrakh from 4.4 to 19.8%. The package was received by the bank as part of a repo transaction, the message stated. That is, the shares of Rosgosstrakh are pledged against a loan received by the insurer from FC Otkritie. The loan amount was not disclosed in the message.
RBC refused to clarify the details of the deal at Otkritie. Rosgosstrakh advised to contact Otkritie for comments.
These are the first public actions taken by FC Otkritie after it became known in December 2016 about the impending merger of the bank with Rosgosstrakh and its subsidiary Rosgosstrakh Bank.
Then several sources in financial circles reported this to RBC. The merger was planned for 2017. According to the calculations of the participants in the transaction, the merger will create the largest private financial group in Russia with assets of more than 4 trillion rubles. and a customer base of 50 million people. It was assumed that in exchange for insurance and other assets, the ultimate beneficiary of Rosgosstrakh, Danil Khachaturov, would receive a minority stake in Otkritie. Its size will depend on the results of the assessment of the businessman’s assets, RBC’s interlocutors said then.
Officially, the parties commented on the deal extremely sparingly. Market participants in their comments then did not rule out that the transaction could be forced for Rosgosstrakh, which is in a difficult financial situation due to the unprofitability of the OSAGO segment, where Rosgosstrakh is the largest player.
Precedent transaction
Experts interviewed by RBC call the structuring of a merger in the form of a repo transaction a “precedent transaction”, since the standard combination of businesses is carried out through direct entry into capital.
In this case, the repo mechanism was used, in which securities are sold and at the same time an agreement is concluded to repurchase them at a pre-agreed price. However, if a reverse transaction does not occur, the shares remain with the lender.
In the absence of comments from the parties to the transaction, experts interviewed by RBC made a number of assumptions about its form and essence.
Pros for Rosgosstrakh
The repo transaction with FC Otkritie makes it possible to partially improve the financial position of the insurer, allowing it to quickly raise the necessary funds, a source close to one of the parties to the transaction clarified. Last year, insurers faced the maximum level of payments under compulsory motor liability insurance, according to data from the Russian Union of Auto Insurers (RUA). Thus, Rosgosstrakh received 54.67 billion rubles. insurance premiums, and paid 68.85 billion rubles. As a result, the excess of payments over the premium amounted to RUB 14.2 billion.
Otkrytie probably provided assistance to Rosgosstrakh in the context of ongoing negotiations on the format of the merger. In particular, the Bank of Russia’s position on this large-scale transaction has not yet been publicly determined,” says Oleg Vyugin, a member of the board of directors of B&N Bank.
NRA Managing Director Pavel Samiev believes that Rosgosstrakh may not have enough funds to meet the new capital adequacy requirements for insurers, which came into force on April 1. “The financing allocated as part of the repo transaction allows them to be contributed to the shareholder’s capital, secured by their shares,” he believes.
Benefits for FC Otkritie
“For FC Otkritie itself, this repo transaction may be interesting for several reasons. Firstly, since the shares of Rosgosstrakh are pledged and not owned by Otkritie, this does not burden its capital. While direct ownership of shares and shares of subsidiaries, according to the requirements of the Central Bank, reduces the banks’ own funds,” says FBK Vice President Alexey Terekhov.
For FC Otkritie Bank, its own financial position is important. At the end of December last year, the rating agency Standard & Poor's placed the ratings of Otkritie Bank under review with the possibility of reduction. The agency noted that the financial profile of the holding could worsen, including due to the holding's possible purchase of the insurance company Rosgosstrakh and the protracted the process of obtaining additional financing for the rehabilitation of Trust Bank.
Moody's Junior Vice President Petr Paklin also agrees that the repo mechanism could have been chosen due to the fact that, from the point of view of capital consumption, a repo transaction has less burden. “Repo is a convenient and flexible instrument that consumes less capital compared with a conventional loan, and there is no transfer of ownership of the pledged asset,” he points out.
In addition, continues Alexey Terekhov, shares of Rosgosstrakh are pledged under a repo transaction with voting rights on them; accordingly, Otkritie can use them to begin implementing its own strategy and tactics in Rosgosstrakh and participate in the management of the insurer. By providing loan funds to Rosgosstrakh, FC Otkritie Bank may have received a certain trump card in further negotiations, Oleg Vyugin also points out: “Look, we supported you, but we can win it back.”
“In my opinion, structuring a merger in the form of a repo transaction is a form of protection against risks in order to be able to return everything to its original state at any time,” notes Maxim Solntsev, chairman of the board of SDM Bank.
Bypassing approval
Market participants pay special attention to the size of the stake in Rosgosstrakh pledged to FC Otkritie under a repo transaction. It is less than 20%.
Obtaining a larger block of shares, according to the requirements of the Bank of Russia, would require mandatory notification to the regulator. Obtaining less than 20% of the shares significantly reduces the time spent on the transaction and simplifies its implementation. “After all, the regulator may impose restrictions on the actions of FC Otkritie Bank, in particular due to the fact that it is carrying out the rehabilitation of Trust Bank,” points out Maxim Solntsev.
The Central Bank declined to comment, citing the fact that they do not comment on existing banks and companies.
However, sooner or later one of the largest transactions on the market will have to be approved by the regulator. The right to dispose of 19.8% of Rosgosstrakh shares received by Otkritie Bank may be a preparatory stage as part of a larger transaction that requires approval from the Central Bank, points out Pyotr Paklin.
Marina BOZHKO, Ekaterina LITOVA
The purchase of the Rosgosstrakh company by FC Otkrytie bank ultimately brought down the financial corporation, forcing its owner to hastily leave the country. As a ricochet, this operation brought Boris Mints, who had invested money in Otkrytie and is now actively preparing to flee to Malta, to the brink of bankruptcy. Finally, the Ministry of Internal Affairs (MVD) itself has come to its senses, which cannot understand why a previously successful insurance organization suddenly turned out to be completely bankrupt, and its assets were turned into real estate by Danil Khachaturov and transferred abroad. The fact that the Ministry of Internal Affairs has applied to the Central Bank with a request to check the activities of Rosgosstrakh was announced on Thursday by the deputy chairman of the Central Bank, Vladimir Chistyukhin. The regulator is currently looking into this issue.
At Otkritie Bank, which now owns Rosgosstrakh, for a long time there was a temporary administration that looked at all the business processes of the insurer, he said: “We must decide for ourselves whether there is a need to discuss with colleagues from the Ministry of Internal Affairs, whether there is a need to carry out verification or whether we can simply use all the documents and knowledge that we have today from the Central Bank" (quote from RNS).
Currently, the legislation does not provide for the format of joint inspections, Chistyukhin noted. “Verification is only a tool; you need to get some facts. It’s not a fact that this requires verification.” “Otkritie Financial Group works closely with law enforcement agencies, including the Ministry of Internal Affairs, in a number of areas. We do not have information about the reason for the Ministry of Internal Affairs’ appeal to the Bank of Russia to inspect Rosgosstrakh,” said a representative of FC Otkritie.
Theft in Rosgosstrakh
In December 2017, Mikhail Zadornov, who headed FC Otkritie and the board of directors of Rosgosstrakh earlier this year, criticized the work of the former management of the insurer in an interview with Kommersant. In his opinion, theft reigned “from top to bottom” at Rosgosstrakh, and with a unique position in the market, he managed “to do absolutely nothing in the name of the owners and management for ten years.”
Former co-owner and president of the Rosgosstrakh group, Danil Khachaturov, responded to accusations of theft in an interview with Vedomosti. According to him, people from this same “team of incompetents” today also head insurance departments at the Central Bank, Sberbank and VTB. “The company didn’t have a single penny borrowed! And to steal from yourself, you can come up with a much simpler way than spending 15 years of your life and hundreds of billions of rubles in investments to build a company that is a market leader in all types of insurance,” Khachaturov noted.
Rosgosstrakh ceased to be profitable in 2015, when the company’s loss amounted to 5 billion rubles and has only increased since then. For nine months of 2017 (there were no reports for the year yet), the insurer’s loss amounted to 35.3 billion rubles, which is 60% higher than the same figure last year (22 billion rubles). Rosgosstrakh plans to get out of losses in 2018. To do this, he will close some offices and will not restore his share in the MTPL market.
According to the Ruspres agency, IC Rosgosstrakh and the management company (MC) Management Consulting are minority shareholders of the Federal Group "Future", which unites non-state pension funds (NPF) of Boris Mints. These two companies nominated their candidate for election to the board of directors at the extraordinary meeting of shareholders of FG Future, but he was not included in the voting list because the deadline for submitting a proposal for a candidacy was not met.
