Head of Trust - RBC: “The amount of available money in the economy is underestimated”

The HEAD of Trust, Alexander Sokolov, spoke in an interview with RBC about the bank’s new strategy, disputes with billionaires, money stuck in Europe and how the Russian judicial system should be similar to the British one Alexander Sokolov

How much money will Trust return to the Central Bank?

Strategy after 2024

On competition with foreigners selling businesses in RUSSIA

“Red” balance of Tariko, agreements with Mamut and Gutseriev

About problems with returning money from abroad

Belyaev, Mintsy, Ananyev

Is Trust afraid of Western sanctions and why are British courts attracted to it?

About the sale of a stake in UWC

About the auction for the Riviera shopping center and other transactions until the end of the year

“We are talking about 560 billion rubles. in the horizon until the end of the new strategy"

— The Trust strategy, for the sake of which it was formed as a bank of non-core assets, ends in 2023. You planned to collect 482 billion rubles for the Central Bank. by this date, but they assumed that it could move. Will the plan still stand in the end?

- Everything remains in force. We planned to collect 482 billion rubles on the bank’s balance sheet, and return the received recovery [reimbursement] to the Central Bank minus administrative, project, legal and other expenses. The strategy was completed two months before the end of the five-year period and will definitely be exceeded this year. We expect to close the year - I will say it carefully - with a total recovery for all five years of about 510–515 billion rubles. Overfulfillment will depend on the terms of the transactions that we close before the end of the year.

That is, this year the strategy will be exceeded by about 30 billion rubles. In the next three years, there is the potential to additionally collect about 50–60 billion rubles.

Trust, which was previously a commercial bank, has been operating as a non-core assets bank since 2018. In 2017, it was sanitized by the Central Bank together with Otkritie, to which Trust belonged, and transformed the organization’s business model. Troubled assets of three sanitized private banking groups were transferred to Trust - in addition to Otkritie, these are B&N Bank and Promsvyazbank.

The main owner of Trust is still the Bank of Russia. The bank’s strategy envisaged returning 482 billion rubles to the Central Bank by the end of 2023. through the sale and management of acquired assets, as well as the collection of funds from debtors. In March of this year, it became known that the Trust strategy had been extended until 2027. Until then, he will also retain his banking license.

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— What part of the recovery volume did you manage to obtain through the sale of assets from your balance sheet, through collections from lawsuits and through settlement agreements?

— Only 13% of total recovery is due to bankruptcy procedures. The Trust group received the remaining 87% of the total cash flow through asset and real estate management, settlement agreements, various forms of settlements, and restructurings.

If we talk about specific figures, 170 billion rubles. — these are various settlements, 102 billion rubles. — asset management and M&A transactions, RUB 97 billion. — restructuring [of debt obligations], 63 billion rubles. — bankruptcies and judicial collections, 48 ​​billion rubles. — management and sale of real estate. This is how the 482 billion that have already been collected are distributed. When we talk about 560 billion rubles. in the horizon until the end of the new strategy, the fee structure will not change, the numbers will simply be adjusted.

— If we talk about the structure of income received, what conclusion can you draw for yourself? Will this be somehow taken into account in the implementation of the Trust's future strategy?

— Statistics confirm what we stated at the very beginning: the Trust group was created in order to increase the fair value of assets on the balance sheet and find a solution with each problem borrower. Only in 13% of cases, when clients did not want to accept responsibility and fulfill obligations, it was necessary to resort to bankruptcy of individuals and legal entities.

“There are no assets - instead there are drawn balance sheets”

— The adopted strategy for three years—will it be a new strategy or rather a prolongation of the old one?

— Extension of the old one. Despite the fact that the Trust has achieved its strategic financial goals, the share of projects for which work is fully completed does not exceed 30%. The bank continues to conduct 8 thousand COURT hearings a year, and this figure has not yet decreased. The new strategy will be more aimed at completing all processes, including the recovery of debts and bringing to vicarious and criminal liability those responsible for the withdrawal of funds.

— Do we understand correctly that the receipt of possible results from courts, including abroad, is postponed to 2024–2026? And the estimate is 60 billion rubles. does it include all collection options? She seems quite modest regarding the demands that you presented to the debtors.

- Right. Part of these 60 billion rubles. formed by a forecast of cash flows, including from collections in international jurisdictions.

The volume of stated claims and the potential volume of recovery always differ tenfold. Let's remember the case of [Ilya] Yurov, [Sergei] Belyaev, [Nikolai] Fetisov - the previous shareholders of Trust Bank. When we concluded our arguments in the High Court in London, we were awarded over $900 million in damages. The remaining property of the bank's ex-owners was, at best, worth $30–40 million.

This is a given for banks that are undergoing a resolution procedure: there are no assets, instead there are fraudulent transactions and drawn up balance sheets. All institutions working with non-core assets, including international ones, are faced with the difference between the book value and real value of assets.

In 2019, we did an analysis of what recovery rates are obtained not for the fair value of assets, but for the gross balance, and we saw that 20–25% is the best result that anyone in the world has been able to achieve. This is the world practice of financial recovery.

— What indicator does Trust have?

— Considering that out of 2 trillion rubles. of the book value of the assets transferred to us, we will return 560 billion rubles, which comes out to about 28%. This is a very good result by international standards. Possibly the best that has been achieved in the world in the last decade.

— Are you planning to file any new claims or will you just complete the old ones?

— There will be lawsuits, but I don’t expect large and resonant ones. As part of our work with the largest former controlling persons, we filed almost all the claims. It is possible that additional specific requirements will appear within the framework of ongoing proceedings. In large and complex litigation, facts are always revealed that were unknown before going to court , which can form new claims.

— Do we understand correctly that the extension of the strategy does not imply the transfer of any new assets to the Trust’s balance sheet? Or is there something else you can get?

— At the moment, there is no institution from which we would be preparing to accept new assets. But three years in the new realities is 15 years in the old ones. What may happen over the next three years while we complete the processes is an open question.

Facts about Alexander Sokolov

In the banking business since the early 2000s. He worked at Avangard Bank and the Bank of Moscow, and in 2005 he moved to Trust, where he oversaw risk management of the retail business. Almost 15 years later, Trust, which had already come under the control of the Central Bank, will sue the bank’s former owners Ilya Yurov, Nikolai Fetisov and Sergei Belyaev in the High Court of London. Since 2008, Sokolov worked at VTB24: he came to the post of DIRECTOR of the risk analysis department, and soon joined the board of the bank, which was then headed by Mikhail Zadornov. In 2017, following Zadornov, he moved to the team of the Otkritie bank, which became a state-owned bank. A year later he headed Trust, on the basis of which a bank of non-core assets was created.

Alexander Sokolov (Photo: Mikhail Grebenshchikov / RBC)

“There is still a shortage of quality assets on the market”

— How much did the massive sale of foreign businesses hinder you when selling your assets?

— We are faced with competition in the supply market. Our assets were sold at a very high multiple - on average 6 EBITDA (the EV/EBITDA multiple reflects the ratio of the company's value to its earnings before interest, income tax and depreciation of assets. One of the universal business valuation multiples in M&A transactions. -). At the same time, foreign companies, leaving the Russian market, sold assets at a significant discount - for 3 EBITDA. And this despite the fact that in their case there are also mandatory additional deductions. Such a dispersion in supply prices could lead to the fact that our assets would be less interesting for investors than the assets of departed foreign companies.

This circumstance made us think seriously about our strategy. The scenario of reducing the starting price was even considered . But in the end, they decided to sell the assets at the planned price, and not based on current market conditions. For successful implementation, we have strengthened our marketing strategy and the intensity of work with potential investors.

The amount of available money in the Russian economy is also underestimated: investors have enough money. There is still a shortage of quality assets in the market and high competition for them.

Individual investors and businesses have available financial resources that they are willing to invest, especially as the stock market has suffered greatly in terms of range, availability and security. I personally, and most of my friends, have frozen investments in shares and bonds of foreign issuers. After such events, the investor looks at capital allocation completely differently and looks for more reliable assets. So good assets are hunted and they quickly find a buyer.

— The aspect that transactions with foreigners must take place with the permission of a government commission did not help you and this is a very slow process. Wasn't that good for you?

— Preparation of M&A transactions with complex assets takes from six months to a year. During this period, it is not a problem to spend a month obtaining permission from the legal commission, since it works quickly and efficiently. So it cannot be said that due to this requirement we received any advantages over foreign sellers.

“Carpet and chairs don’t cost much.”

— In the summer, Trust entered into a settlement agreement with the structures of businessman Alexander Mamut due to the debts of the Formula Kino and Cinema Park cinema chains. Can you disclose how much the Trust received from these entities under the settlement agreement?

— I won’t give the figure, because it’s a commercial secret. But I can say that the amount significantly exceeds the amount of cash flow that the bank of non-core assets would receive if it continued collection through the implementation of the judicial strategy.

We must understand that covid-19 has almost destroyed the film industry and offline cinema. The main assets of Mr. Mamut’s business were, in fact, licenses for film distribution and, accordingly, revenue that came from the audience flow. The standard model of this business: a rented building in which a cinema is equipped and leased equipment. The property includes carpet, chairs and licensing rights, which do not cost much.

We couldn't find a solution for a long time. At some point there was both harsh rhetoric and quite aggressive actions on both sides. This was probably one of the most difficult multi-component projects to put together. But in the end we managed to agree on terms that were fair for both parties.

-Who came first to make peace?

— When working with problem assets, it does not matter who was the first and who was the second to propose a peaceful settlement of the dispute. These roles change over the course of long discussions. Either one side is more ready for a compromise, then the other. This is a complex dialogue with a large number of participants: moderators, peacekeepers and referees of various levels. It is important that in the end agreements were reached and are being implemented.

— In this case, can we say that Mamut and his structures have left the perimeter of the interests of the Trust as a creditor and as a claimant?

— Yes, we have completely settled all relationships. Trust has no questions left for Mr. Mamut’s group.

— Another debtor of yours is Mikail Shishkhanov, the former controlling shareholder of B&N Bank, which was sanitized by the Central Bank in 2017, with the amount of claims from all creditors being 876.4 billion rubles. What portion is accounted for by the Trust? How much can you really charge him?

— More than 90% of the debt falls on us. But now it is difficult to estimate how much it will actually be possible to recover. At the moment, we do not see Mr. Shishkhanov having enough assets to cover all the debt. At the same time, the size of the debt practically excludes settlement options, which means that we are left with only one strategy - bankruptcy. It is highly likely that we will win all the key cases, but we will not be able to cover the entire amount of debt.

— In the summer, Trust stated that Rustam Tariko’s Russian Standard holding was violating the terms of debt restructuring. Is this debtor paying now?

— There were late payments, but they have now been repaid. Rustam Tariko's group is back on schedule and performing. We are back in restructuring mode. We hope that payments will continue to arrive on time and we will not have to use an alternative strategy.

— Have you changed the terms of debt servicing this year?

— No, we did not change the terms of the restructuring.

— What do you attribute the resumption of payments to? Why did they stop and why did the debtor start paying if the conditions did not change?

— Mr. Tariko owns an international vodka business and is experiencing difficulties due to the geopolitical crisis. We understood that he was faced with sanctions, asset freezes, and the inability to conduct transactions through certain foreign banks. All this periodically leads to a cash gap. Understanding the circumstances, we knew that the “red” balance was temporary and the payment would arrive. And so it happened.

- Quite old settlement agreements - for example, with Sergei Gordeev, co-owner of the development group PIK, and Mikhail Gutseriev, the main shareholder of the industrial and financial group Safmar - were not revised? Are they being implemented?

— All settlement agreements that have been concluded are fulfilled by everyone 100%, some ahead of schedule.

- Which ones are ahead of schedule?

— For example, some of Mr. Gutseriev’s payments arrived ahead of schedule. The bank of non-core assets has three settlement agreements with him. The first and third ones totaled 130 billion rubles. (the third agreement can be called a restructuring agreement to the first) were executed in full and ahead of schedule. According to the second - we do not disclose its terms - 2.2 billion rubles remain to be repaid. I have no doubt that it will also be fulfilled on time: the first payment is due in December of this year, the second in December 2024.

- When did this happen?

— The third agreement was executed in 2021, and the first in October of this year.

Alexander Sokolov (Photo: Mikhail Grebenshchikov / RBC)

“Withdrawal of money from England is difficult”

— You mentioned earlier that key litigation abroad, which is being conducted by the bank of non-core assets, continues, despite the external background, but some deadlines have shifted. How much debt have you managed to “settle” after February 2022?

— On average, international trials have moved forward by a year and a half. For a year due to the impact of COVID-19, when meetings were postponed, for another six months due to the beginning of the geopolitical crisis in February 2022.

Since February 2022, the bank of non-core assets has won several court hearings. We still do not feel any bias in either the English or Cypriot judicial systems, where we have our main disputes. Now there is no reason to predict that the situation will change for the worse.

But questions arise with the collection of outstanding debts. There is no direct tool yet. We are even considering the option that these funds will be used to finance trials abroad. Previously, recoveries came from abroad, part of which we spent on paying for the services of international lawyers. Perhaps now we will deposit this money abroad, thus closing the settlements. This is unpleasant for us, but not critical.

—Have you ever encountered a situation where you were not allowed to bring money to Russia?

— We collided within the framework of the case of Yurov, Belyaev and Fetisov. The High Court of London issued a final judgment in favor of the Trust for a total of $900 million in damages. This judgment is enforced in the jurisdictions where the defendants' assets are located. At the moment, it is difficult to withdraw funds from England.

— How much money are we talking about?

— At the moment, about £2–3 million ($2.5–3.77 million).

— But do you expect these amounts to increase?

- They will grow up. Litigation continues regarding the recognition and enforcement of English court decisions against Yurov, Belyaev and Fetisov in the jurisdictions where their assets are located. The property is being sold. I am sure that Trust will receive the money.

"Cypriot jurisdiction is even slower than English"

— At what stage are the claims against Vadim Belyaev (former co-owner of Otkritie Bank, which was sanitized in 2017) and the structures of Otkritie Holding?

— Work regarding Vadim Belyaev is proceeding in several directions at once. Back in mid-2021, in a New York state court, Vadim Belyaev recognized the jurisdiction of Russian courts in disputes against himself. In this regard, the bank of non-core assets already in the Russian court demanded compensation for the losses caused to it. This dispute is currently under consideration. We expect a decision in the first half of 2024.

At the same time, a lawsuit was filed to recover losses from the Mints family (Boris Mints, a former shareholder of Otkritie Bank, as well as the sons of the businessman Alexander, Dmitry and Igor, according to Trust, were involved in transactions with Otkritie before its reorganization. - ) in the High Court in London. In one of the episodes of this dispute, Mr. Belyaev acts as a co-defendant. We hold him and his business partners to subsidiary liability as part of the bankruptcy of Otkritie Holding JSC. Since the completion of this area is tied to the completion of the bankruptcy procedure (the amount of liability is determined after the completion of settlements with creditors), the processes will proceed in parallel for some time.

At the same time, the process is long, and the court could not make a decision on starting the bankruptcy procedure for Otkritie Holding for a year and a half, although the register of creditors already included debts worth a trillion rubles. The position is phenomenal, but given the composition of the interested parties, unfortunately, it is understandable.

Requirements under [Article] 189.23 (the article of the Bankruptcy Law, which provides for the liability of persons who controlled the credit institution. -), which the Trust acquired at the end of 2022, will be in addition to classic losses. They will allow us to be more free in choosing collection tools.

To summarize, with Belyaev and Otkritie Holding we are rather in the first third of the way - we think the decision will be within four years. Unlike Messrs. Mints, where we went through 80% of the trials.

— What about the Mints and Ananyevs (Alexey and Dmitry Ananyevs, former co-owners of Promsvyazbank) what are the deadlines?

— The court hearing [in the Mintsev case] is scheduled for the spring of 2025. We expect to win on the merits. The bank of non-core assets has a strong legal position. The property has already been seized and is not going anywhere.

The Cypriot jurisdiction, where we are suing the Ananyev brothers, is traditionally even slower than the English one. The process, unfortunately, will drag on for years.

— Aren’t you afraid that your extended strategy for three years will not be enough to complete these processes?

— Three years are definitely not enough to complete 100% of international cases. But we are not afraid of this, because this is a given.

- So what, you won’t follow through on some cases?

— All collection cases will be completed. Perhaps in three years we will transfer the rights somewhere. Basically, we plan to liquidate the Trust legal entity in 2027.

Alexander Sokolov (Photo: Mikhail Grebenshchikov / RBC)

“I want our judicial system to reach the maturity level of Great Britain”

— Some large Russian banks, which also collect debts abroad, due to sanctions restrictions are following the path of assignment, that is, the sale of claims on these debts to some third, unrelated parties. Is Trust considering such an option, selling debts to the market?

— Yes, we have worked on such a scenario, but this is a difficult option, because some of the rights cannot be transferred through assignment. Out of desperation, when there is no alternative, you probably have to go for it. The Trust has not been placed on any government's official list of sanctioned entities, so we will continue our debt collection efforts as long as possible.

We now have no need to follow the path of cession, and we are not doing so. We obtain licenses to conduct litigation. Here you need to look at each specific case so as not to lose the scope of rights that you have when transferring ownership.

— About the sanctions aspect. Some of your debtors, such as the Mintz family, tried to block the litigation, citing sanctions . They filed a petition stating that Trust Bank acts in the interests of the Bank of Russia, which means that this will be a payment of money to Russia. Are any other of your foreign debtors taking advantage of this loophole?

“Our opponents, who fled abroad, tried to use this argument. In addition to the Mints family, the Ananyev brothers tried to rely on this.

The petition of Messrs. Mintz in England was considered and they were refused. Trust Bank fully retained its rights. Our opponents wasted time and money because they achieved zero results.

The judicial system in the UK is no-nonsense, very professional, and I would like to see our judicial system reach the same level of maturity. In the UK, in a situation where you are essentially right, the probability of winning is almost 100%. It was clear that the attempt to attack us through the sanctions prism, undertaken by the Mintz family, was made for the sole purpose of evading responsibility. And any sane person would naturally accept the decision that the English judge made.

— If your opponents are looking for different ways to use the sanctions theme in trials, maybe you know whether they lobbied for direct sanctions on Trust?

- Don't know.

— Aren’t you afraid of such a risk?

- I'm not afraid.

“We couldn’t risk putting the asset up for auction”

— This year you had several major transactions: the sale of Tochka Bank, Baltic Leasing, and ordinary shares of RussNeft. What else do you have planned for the rest of the year?

— On November 21, the auction for the sale of 100% of the shares of two oil producing companies: Inga and Trans-Oil ended. They sold it at 2.6 times the starting price - for more than 20 billion rubles. Upside exceeded my expectations. Four companies competed for the right to purchase; the auction lasted 27 hours.

We also left UWC (United Carriage Company -), as planned, by the end of the year. The deal is direct. We sold the rights to claim the loans and our 93.6% stake in shares, which was formed as a result of an additional issue. The deal is closed, the money has arrived. I won't reveal the details.

Simultaneously with preparations for sale, we carried out financial recovery through the conversion of part of the debt into equity. The company now has an acceptable level of credit load, and the recovery process has been completed. We will reserve the rights to claim against the defaulted OVK Finance.

— Can you give me a hint who the HVAC buyer is?

- No. For reasons of the importance of this transaction for the state. This is a system-forming enterprise in the railcar building industry; UWC today occupies more than 80% of the market in the innovative railcar building segment. Objectively, for the country this is a strategic asset, the sale of which follows a slightly different trajectory than other assets that Trust sells at open auction. I can only say that he is a specialized investor.

— Will there be an offer to minority shareholders?

- No. The conversion of the Trust's debt into capital occurred as part of the exercise of the pre-emptive right, therefore, according to the law on joint stock companies, the Trust does not have an obligation to buy out minority shareholders.

— Do you follow the UWC stock market? How can you comment on the collapse in quotes that occurred in November?

— The volatility of shares always depends on free-float (volume of shares in free float. — ). If it is really small, then the volatility can be significant. During the additional issue, the shareholdings of those who do not participate in it are diluted. But economically, all UWC shareholders ultimately benefit, because the company will show completely different results. We already see the company’s business plan for next year in a high degree of readiness: there are very good indicators, very significant revenue growth. This is the result of the activities that we have implemented in recent years.

— Why did you decide to enter into a deal now, if you say that the company could have very good performance in the future, because the asset could rise in price even more?

— I have already spoken about the strategic importance of the company for the country. It was important to quickly transfer the recovered asset to a specialized investor. At the same time, we could not take risks by putting the asset up for auction. It was important for us to understand that the buyer was interested in developing the business, so we offered the asset only to specialized players.

Alexander Sokolov (Photo: Mikhail Grebenshchikov / RBC)

“The average bill in shopping centers cannot be restored”

— Previously, you allowed the sale of a block of preferred shares in RussNeft before the end of the year. Will this happen?

— We hope that it will happen. We will sell about a fifth of our stake. Now our share is about 66% of all preferred shares.

— Is there only one buyer?

— There is only one buyer.

— The media reported that Trust is negotiating the sale of the Riviera shopping center to the Kyiv Ploshchad group. Did such negotiations really take place?

— “Riviera” is put up for open auction. The buyer will be the participant who offers the highest price.

— But is Kyiv Ploshchad among those interested in this asset?

— Yes, like other specialized investors. We don't know who will win the auction.

— How much has the price tag for shopping centers decreased due to the departure of brands?

— The commercial efficiency of most shopping centers suffered greatly: first, shopping centers were hit by COVID-19, then cinemas began to go bankrupt because there was less content, then “anchors” like Zara began to leave the Russian market. Remembering the  same “Riviera”, now the occupancy rate of the space is about 92–95%, and it was 80%. In principle, we returned the download, but the average receipt has not yet been restored. The rent consists of mandatory payments, but this is a smaller part, while the larger part is tied to the turnover of the tenants. Business suffered greatly and is now slowly recovering.

— How might this affect the sale price of the Riviera? In 2021, you purchased an asset for 9.96 billion rubles, now it is up for auction for 10 billion rubles, that is, with a very small premium. Do you have any expectations that this asset will also sell for more?

— I don’t expect big upsides. The starting price is fair for both us as the seller and the interested buyer. Again, there are not many players willing to invest big money in this business or take on management of such large-scale projects as Riviera.