Russia’s Anatoly Motylyov: Rise, fall, repeat

Courtney Weaver

Anatoly Motylyov was the perfect image of an erudite Russian banker: born into the Soviet elite, he mingled easily with the Kremlin-connected elite and the leaders of the Russian Orthodox Church.

The 49-year-old banker stayed largely out of the public eye — no yachts, no villas, no lavish parties — and cut an unassuming figure, sporting the glasses and clipped moustache of a 1980s accountant. His focus appeared to be on his billion-dollar banking business, which spanned four Russian commercial banks and seven private pension funds.

Now, following the dramatic collapse of his empire, a different Mr Motylyov is emerging. The man considered to be a low-profile introvert is accused of running one of Russia’s largest ‘vacuum cleaning’ financial operations — sucking in deposits by offering double-digit interest rates and using the money to finance his personal business ventures.

The tale of Mr Motylyov’s rise and fall is also raising broader questions about the stability of the Russian banking sector, which has been battered by the precipitous decline in the oil price, a volatile rouble and western sanctions.

In July, Russia’s central bank withdrew the licences of Mr Motylyov’s four commercial banks, including Rossiisky Kredit, Russia’s 45th largest bank by assets; last month it pulled licences for the seven private pension funds he oversaw too. Together Mr Motylyov’s four banks had more than $1.1bn worth of deposits. The pension funds, valued at more than $1bn in April, held the savings of about 1m Russians.

Last week, Russia’s central bank said it had found a $1.5bn hole on the balance sheets of Mr Motylyov’s lenders. Russian law enforcement agencies are looking into potential criminal transactions undertaken by the banks’ management. Mr Motylyov has not appeared at his banks’ offices since July and, according to some Russian press reports, has fled the country to the UK. The businessman could not be reached for comment.

The implosion of Mr Motylyov’s banking empire looks to represent one of the biggest bank failures since the Russian economic crisis began a year ago. The majority of the losses incurred by Mr Motylyov’s pensioners and depositors are expected to be covered by the state. Yet some are pointing fingers not just at the banker but also at Russia’s central bank for allowing Mr Motylyov to build up a billion-dollar banking group in the first place.

The regulator should have been more proactive, critics say, because Mr Motylyov had overseen the collapse of a bank before. Mr Motylyov ran a large Russian lender called Globex that ran into trouble during the 2007-2008 financial crisis, requiring a bailout of more than $2.5bn. After the bailout, government administrators found that hundreds of Globex’s corporate borrowers were shell companies which authorities said Mr Motylyov had been using to funnel money to his failing real estate ventures.

Analysts say there are striking similarities between Globex and Mr Motylyov’s more recent ventures — making it all the more remarkable that the central bank did not act to withdraw his banking licences sooner. “Anatoly Motylyov repeated the same trick twice. The government spent Rbs87bn on Globex’s sanitation and he wasn’t even sent to prison,” says Maxim Osadchiy, an analyst at CFB Bank in Moscow.

Sergei Aleksashenko, Russia’s deputy central bank governor from 1995-1998, described the recent implosion of Mr Motylyov’s banks as a failing on the part of the Russian regulator. “There are people who can be taught and people who cannot be taught,” he says. “This is the only way to explain this situation.”

Over the past year and a half, the central bank has launched a clean-up of the Russian banking sector, withdrawing the licences of more than 140 Russian banks. The strategy is part of a long-planned move to rid the sector of weaker players and so-called pocket banks, which hold the assets of individual businessmen or families, and tend to be a source of money laundering.

The purge has largely been lauded by market participants. However, critics say that the regulator is still not doing enough, pointing to Mr Motylyov’s chequered history as a prime example.

“The progress of the regulator has been spectacular,” Artem Konstandyan, chief executive of Promsvyazbank, one of Russia’s largest private lenders, says diplomatically. “Whether they are already ideal is another question.”

The regulator’s clean-up has cast light on the underbelly of the Russian banking sector, which extends far beyond established problem banks like Mr Motylyov’s to some bigger names that were believed to be safe banking bets.

In December, Trust Bank, Russia’s 32nd largest bank by assets, was revealed to have a Rbs28bn hole in its balance sheet, a number that was later revised to Rbs127bn. Last month, the central bank announced that Probusinessbank, a bank with western investors including Sweden’s East Capital and the hedge fund BlueCrest, had been keeping fictitious bonds on its balance sheet. At the time its licence was withdrawn, Probusinessbank had $1bn more liabilities than it did assets, according to the central bank.

“The state of the banking system is worse than people think,” says a person close to one of Probusinessbank’s shareholders. “[Probusinessbank] I think is a reflection of this.”

Years of rapid lending and retail deposit growth might have masked underlying problems at some Russian lenders, but the shortcomings are now coming to light as the rate of non-performing loans rise.

“What exacerbated these banks’ problems and made them more apparent was the current crisis. When you have a weak organism and then something hits you it can be lethal,” says Irakli Pipia, an analyst for Moody’s.

Since the middle of July, the central bank has stripped about a dozen banks of their licences, a move that has affected about 1 per cent of Russia’s retail depositors and whittled the total number of Russian banks down to about 800 from a peak of close to 1,000 in 2008. Yet few of those banks’ and bankers’ stories are quite like Mr Motylyov’s.

Born in Moscow in 1966, Mr Motylyov enjoyed a privileged upbringing. His father Leonid Motylyov was a prominent Soviet official who ran the state insurance agency, Gosstrakh. He graduated from the Moscow Financial Institute, a feeder for high-ranking financial jobs, and subsequently enjoyed a quick rise in the banking industry in the 1990s, creating Globex and Rosgosstrakh — Gosstrakh’s successor agency — in 1992.

According to Russian Forbes, Mr Motylyov experienced a setback in 1996 when he was detained by Russian authorities on suspicion that he had illegally written off Rosgosstrakh assets from Globex accounts. The allegations were dropped within a month, however, and the incident seemed to be forgotten. By 2002 Mr Motylyov had become Globex’s sole shareholder, a position he held until the financial crisis struck.

In September 2008, as Russian markets were crashing, Globex was hit by an outflow of deposits. That month, Mr Motylyov agreed to hand over Globex for a symbolic Rbs5,000 to state-owned Vnesheconombank.

Soon after the sale, Globex’s state-appointed administrator announced that the lender would require an Rbs87bn bailout. The bank, authorities said, had been lending money to fictitious shell companies that were helping Mr Motylyov refinance his real estate projects. Of the hundreds of companies that Globex was lending to, just a few dozen were real businesses with actual assets on their balance sheet, according to Vitaly Vavilin, who took over as president of Globex following the bank’s bailout.

A ‘roof ‘ over his head?

Suspicions about wrongdoing at Globex dated back to long before the bailout. In September 2009 Dmitry Tulin, then a partner at Deloitte, revealed that he had alerted top officials to Globex’s problems in 2004 when he was an employee of the central bank, but that his bosses failed to act.

Eventually, Mr Tulin says he quit over the matter. “To work with such a weight on your soul is impossible,” he wrote in a 2009 essay for Russia’s Analytical Banking Journal. “Globex was the champion at falsifying financial statements.”

Mr Tulin, now back at the central bank as head of monetary policy, published his essay in September 2009. By the end of that year, however, Mr Motylyov was already back in the market, determined to recreate the banking empire he had lost during the crisis.

By the end of 2009, Mr Motylyov had created a new lender, the Moscow-based AMB Bank. In 2012, he and other investors acquired Rossiisky Kredit Bank from Bidzina Ivanishvili, who was preparing to become prime minister of Georgia. By 2014, he owned two other lenders: M-Bank, a Moscow retail bank, and Tulsky Promyshlennik, based in the city of Tula. Mr Motylyov also began investing in Russian private pension funds.

When the regulator withdrew the licences of Mr Motylyov’s pension funds this summer, it revealed that the retirement savings had been invested in mortgage securities for property projects in the Moscow suburbs. Those developments had names such as “Moon Shore”, “Dream Shore” and “Sea Shore” and were issued by a company called ForTrade, which authorities say was closely linked with Rossiisky Kredit and Mr Motylyov. Analysts say the actual value of the properties may be less than half of what was advertised on the mortgage securities.

In addition to property deals, authorities say Mr Motylyov was also investing in distressed businesses, which had little hope of recovering even before the crisis. The pension funds were found to be holding bonds for a struggling mining operation, as well as a poultry farm that was on the verge of bankruptcy.

In an interview, Mikhail Sukhov, a central bank deputy governor, said the regulator had discovered that all four of Mr Motylyov’s banks had been investing deposits in various business projects connected to Mr Motylyov. “It’s the failure of a concept,” Mr Sukhov said. “You can’t gather money on the market and invest it in projects that you yourself are financing.”

Asked why the central bank had not tried to put a stop to Mr Motylyov’s schemes earlier, Mr Sukhov said the regulator could not revoke lenders’ licences at whim and had had no reason to worry before 2013 after Mr Motylyov acquired Rossiisky Kredit, his biggest lender.

Mr Sukhov warned that Mr Motylyov’s latest string of bankruptcies appeared to be more complex than the Globex bailout. While the overall difference between the group’s liabilities and assets is smaller this time, there appear to be fewer physical assets for the regulator to recover.

“In the case of Globex, there were assets left at the end which could be transferred to a different owner,” the central bank deputy said. “With the current situation, which is still being studied, there is a high level of negative equity. There are few assets that you can physically touch.”

Questions remain about how Mr Motylyov was able to pull off the same sort of scheme a second time. Some question whether the banker had protection from someone in the government, known in Russian as a krysha, or roof.

According to Russian press reports, Mr Motylyov has taken part in activities with the Club for Orthodox Entrepreneurs, an association for Orthodox Christian businessmen with strong ties to the Russian Orthodox Church, where Sergei Glazyev, an adviser to the president, is a member.

Mr Glazyev declined to comment on Mr Motylyov. The Club for Orthodox Entrepreneurs said Mr Motylyov was not an official club member.

A former colleague of Mr Motylyov’s, while not defending the banker’s actions, said that he suspected there was an element of politics behind the regulator’s decision to go after Mr Motylyov this year. Russian central bank and government officials were now furiously working to keep their jobs against the backdrop of the crisis and show they were taking charge.

“The withdrawal of bank licences in the past three months has been so frequent. It’s connected with the general atmosphere in the country — and not just the economics,” the bank executive says. “The economy is in deep trouble. It means something has to change.”

The Financial Times