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Putin Orders State-Owned Bank To Compensate Minority Investors For Losses

By: EW News Desk Team Date: 3 February 2012

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03 February 2012

Russian Prime Minister Vladimir Putin has instructed VTB Bank, which the government has a 75.5 percent stake in, to pay out more than $500 million to "Mom and Pop" investors who saw their investments in the bank cut by nearly half since a disastrous 2007 initial public offering by the bank.

The former Russian president was speaking at a large investment forum in Moscow on Thursday when he issued the order for VTB to repurchase shares from small and local investors at double their current price, stating the need to ensure that citizens did not suffer any losses from what was originally billed as the “people’s IPO.”

According to a report by Reuters, more than 120,000 Russians, mostly first-time investors, had bought shares in VTB during its IPO in 2007, after being lured by the promise of an equal opportunity to share in the national wealth.

But the bank’s share price was hit significantly during the 2008 financial crisis, with the situation only compounded by an ill-fated takeover attempt of the Bank of Moscow, which eventually led to a $14 billion bailout.

“In general it is a serious thing [that so many people lost money],” said Putin in his speech, as cited by the Financial Times.

“I want citizens to know that we will do everything that we can so that there will be no losses. We are even prepared to make the necessary funds available for this,” he said.

The Russian Prime Minister’s statements though were met with surprise and shock by numerous participants at the forum, most notably VTB’s chief executive Andrei Kostin who was in attendance.

The visibly stunned Kostin informed the Prime Minister that such a plan would cost nearly $500-$600 million, but promised to report back to the Prime Minister on Monday on how best to conduct the buyback.

"The bank will study all the aspects of the following instructions and will provide a report to the Russian government," confirmed VTB's press office to Reuters.

Putin’s order comes just as the 59-year-old politician attempts to be re-elected as the Russian president in March. Speaking at the investor forum, the Prime Minister also promised to improve the country's business climate by reducing bureaucratic red tape and eliminating corruption – with the second issue having led to protests within the country that began in December last year.

“It all feels rehashed and familiar, but these are still the kinds of things investors want to hear," said James Beadle, a senior investment adviser at Société Générale, to the Wall Street Journal. "It does seem that the recent events surrounding the Duma elections have increased his awareness of the need for reforms."