On Friday, one of the main intrigues of the banking market was resolved: VTB will become the buyer of Otkritie, which the Russian Central Bank has not been able to get rid of since 2017. True, according to the media, the deal will be “no money”: the Central Bank will have to give the proceeds to the government. One of the goals of the banks’ merger is to bring a “major player” to Crimea, where the RNCB has been operating for a long time. VTB has nothing to lose with Otkritie: both are already under the most stringent US and EU sanctions.

The Central Bank supported the idea of merging VTB with Otkritie and RNKB (Russian National Commercial Bank), Elvira Nabiullina, head of the regulator, said while answering journalists’ questions on Friday.

She admitted that the Central Bank “does not see an opportunity to sell Otkritie Bank.” But it cannot be its owner for a long time. Therefore, the decision to merge the three banks is “reasonable.”

The initiator of the merger idea was the head of VTB Andrey Kostin. This was reported by Kommersant a few hours before Nabiullina’s statement, citing sources. According to him, Kostin made a proposal to Prime Minister Mikhail Mishustin. Edition Frank RG reports that Kostin sent a letter with this idea to President Vladimir Putin. He supported her, Kommersant writes.

Consolidation of the three banks will make it possible to “save on branches” and “bring a major federal player to Crimea,” Kommersant describes the logic of those who made the decision on the deal (according to a source in the government). Apparently, the point is that one of its participants, RNKB, has been working in Crimea since 2014. He was the first to come to the territory of the peninsula after the annexation.

Most likely – nothing: perhaps one of the participants in the transaction will change the name of the brand, some products will disappear, some, on the contrary, will appear, says an analyst at a major broker in the banking sector with the BBC.

But fundamental changes should not be expected. Otkritie and VTB are under sanctions of approximately the same strength, both are on the American SDN-List and under EU blocking sanctions. RNKB has been living under tough sanctions since 2014.

The only ones who find themselves in a real risk zone due to the consolidation of the three banks are their employees. The reduction of duplicate personnel, especially those not employed in the core business, is a standard practice for M&A transactions (mergers and acquisitions). We can talk about the reduction of thousands of employees, says partner FG “Dmitry Donskoy” Dmitry Kurbatsky.

Official details of the merger have not yet been disclosed. But they are described in Kostin’s letter to Putin, says Frank RG (the publication managed to get acquainted with this document, VTB and Kostin did not comment on it).

The letter says that the deal will be virtually cashless. Kostin proposes to structure it in much the same way as the sale of a controlling stake in Sberbank.

In 2020, the government bought it from the Central Bank, paying with currency from the NWF (National Welfare Fund). But almost all the money that the Central Bank received as a result of the deal was automatically returned to the government: by law, the Central Bank is obliged to transfer 75% of its profits to it.

Kostin, in a letter to Putin, points out that as a result of the merger of the three banks, “budgetary funds will be fully returned to the budget through the distribution of profits of the Central Bank.”

Apparently, he means that VTB (60% owned by the state represented by the Federal Property Management Agency) will receive a certain tranche from the budget or the same NWF for the transaction, pay with this money to the Central Bank, and the latter will return them to the budget according to the law on the transfer of 75% arrived.

But this is only a sketch, in reality everything will be more complicated. At least, because the deal will have more participants. 99.9% of Otkritie is owned by the Central Bank, and since 2016 RNCB has been owned by the state represented by the same Federal Property Management Agency.

The BBC sent a request to VTB with questions about the details of the deal and is waiting for a response.

For VTB, it may be a chance not to lose the status of “the second player after Sberbank in all respects,” an analyst at a major broker in the banking sector argues in a conversation with the BBC.

This status may be called into question as a result of the sanctions under which VTB fell. In particular, he was popular with clients who were engaged in foreign economic activity, and now they are leaving, says the source of the BBC.

Nevertheless, even after the merger of VTB, Otkritie and RNKB together will lag significantly behind Sberbank. At the end of 2020, they had a total of about 21 million customers: VTB – 16.1 million, Otkritie – 3.1 million, RNKB – 2.2 million. And Sberbank had more than 103 million people. The amount of assets of all three in total is a little less than 30 trillion rubles, of Sberbank alone – almost 40 trillion.

For the Central Bank, this deal is a chance to end the saga with the sale of Otkritie, albeit without any tangible financial benefit. The regulator took Otkritie, by that time the largest private bank in Russia, for rehabilitation (sanation) in 2017. The media called it a “miraculous rescue”: the Central Bank poured money into the capital of Otkritie, clients and creditors did not lose anything.

The events that preceded this developed rapidly. As a result of a chain of unsuccessful transactions, Otkritie began to have problems. Few people knew about them, until in June 2017 one of the rating agencies downgraded the rating of Otkritie. Customers immediately began to take money out of the bank.

Then, at the beginning of August 2017, Alfa Capital management company warned clients about the danger of the “Moscow Ring” – this is how Otkritie, Binbank, MCB and Promsvyazbank were later called, which carried out mutual transactions in order to hide the real state of affairs from the Central Bank.

When Otkritie had no chance to cope on its own, the Central Bank became its owner. All these years, the market has been waiting for the regulator to announce a bidder for the purchase of the rehabilitated bank. But he was not officially named – although different versions periodically sounded in the media. The buyers of “Discovery” predicted “Yandex”, Gazprombank and the owner of the Moscow Credit Bank (MKB). But things didn’t go beyond talk.

In 2021, few people believed in the reality of the sale of Otkritie, and the scenario of the bank’s IPO (initial public offering on the stock exchange) became a priority – especially since the market quotations of Russian retail banks were growing at that time.

Now this scenario is out of the realm of fantasy. Answering journalists’ questions this Friday, Nabiullina bluntly said that the Central Bank “worked with potential investors” and stressed that there were such. But now it is impossible to sell the bank “to the market”, that is, having earned at least something from this sale, she admitted.