VTB mulls consolidation, possible merger of VTB24, Bank of Moscow - paper
MOSCOW. Feb 14 (Interfax) - The VTB Group, in preparing its strategy to 2017, is discussing the possibility of consolidating its assets, particularly the merger of banks that are part of the group, national daily Kommersant reported on Friday, citing sources.
This process could begin with the merger of Bank of Moscow and retail bank VTB24 , which have many overlapping points. In the more distant future, there could be a consolidation of all the banks in the VTB Group into one bank, but this will depend heavily on the economic situation.
The group is supposed to draft its development strategy to 2017 by the end of April. In Russia, the group includes flagship bank VTB; VTB24, which specializes in retail banking and working with small businesses; the universal Bank of Moscow; and consumer lender Leto Bank.
The paper reported one source as saying that merging all the group's banks at the same time would be difficult to do, and it would be better to do this gradually. The merger of Bank of Moscow and VTB24 is being considered as a first step.
Analysts say that the business model of separate, specialized banks in the group was lucrative only when business was growing rapidly. When growth rates are below 25%, it becomes more profitable to reduce the number of legal entities in the group, as this brings substantial savings.
The question of starting the possible consolidation with Bank of Moscow and VTB24 arose because they have the most overlapping points, the paper's sources said. VTB has yet to decide which bank would be the foundation for the merger. A detailed analysis of this can be done once a fundamental decision is made in the strategy and it is approved.
However, the merger of Bank of Moscow and VTB24 is not the only option being discussed at the VTB Group, the paper said. It has also considered the option of handing Bank of Moscow's large corporate clients to flagship bank VTB and its retail business to VTB24, and then turning Bank of Moscow into a specialized player to work with medium businesses and municipalities, one source said. However, this idea is not a priority, the source added.
A final decision might require regulatory approval, since Bank of Moscow was bailed out by VTB in 2011 with government support. The Deposit Insurance Agency (DIA) provided a ten-year loan of 295 billion rubles for the bailout; the DIA received the money from the Central Bank. Major changes to the bank's strategy that lead to significant changes in its financial results are possible only after the approval of corresponding changes to the financial recovery plan approved by the Central Bank and DIA. Otherwise, any radical actions in regard to the Bank of Moscow are possible only after the complete repayment of the bailout loan, of which only 20.14 billion rubles had been repaid as of February 12.
VTB and Bank of Moscow refrained from commenting on the group's development strategy before its approval, while VTB24 did not respond to questions, the paper said.
VTB head Andrei Kostin said in January that it was important to cut costs and promised "interesting solutions in organizational structure" and changes in the group's management, a reformatting of the management system, "including consolidation of the functions of a range of divisions in one place."
VTB24 and Bank of Moscow ended 2013 in 4th and 6th places by assets on the Interfax-100 ranking of Russian banks.
