Gentle nationalization: How Alfa-Bank shareholders are trying to make Sense of it
And why they cannot replenish the capital by $1 billion, although they are ready to do this
Yesterday, December 1, Alfa Bank changed its name to Sense Bank. Along with the name, it will undergo more global changes related to the russian citizenship of its main shareholders.
More than a month ago, Law No. 2643-IX came into force. It stipulates the procedure for the withdrawal of systematically important banks from the market. The main idea is that the nationalization of this category of banks will be carried out without additional capitalization by the state for a symbolic amount of 1 hryvnia. We can say that it is a gift.
Even though 14 banks are classified as systematically important (see the full list here), the mentioned law has been developed and can be applied to the former Alfa.
Since the beginning of the war, the Ukrainian authorities have been on a steady course to nationalize all assets that are somehow connected with russia and its citizens.
Mind explains why the history of Alfa/Sense Bank is unique compared to other russian businesses in Ukraine and what its future may be.
What is the basis for the confiscation of russian assets in Ukraine? The mechanism of nationalization of russian assets in Ukraine was de facto launched by the Verkhovna Rada after it adopted draft law No. 7122. It came into force in March as Law No. 2116-IX. After that, several amendments were introduced.
Its provisions provide for the seizure of property:
- from legal entities in which the founder, beneficiary or owner of corporate rights is the russian federation;
- from individuals – citizens of the russian federation, as well as from individuals who have close ties with the aggressor state or conduct activities in russia.
According to Law No. 2116-IX, any assets of the russian federation or its residents in Ukraine may be seized without exception. It includes funds, currency values, bank deposits, movable and immovable property, property rights, corporate rights, securities.
It should be noted that these assets do not become the property of the state by default. The state must take a proactive position in this regard.
Why did Alfa/Sense Bank need a special nationalization regime? By itself, law No. 2643-IX on the withdrawal of systemically important banks from the financial market, which has appeared in the autumn, essentially fits into the framework of the idea of nationalization of russian assets. And although the banking law itself does not directly mention the transfer of russian-affiliated banks under state control, there are many signs that Sense Bank is the main candidate for redemption for 1 hryvnia.
- Firstly, it is the only bank with russian owners that is among the systematically important banks.
- Secondly, sanctions have been imposed on all russian shareholders of the bank, and they cannot make any decisions regarding their financial institution.
- Thirdly, Sense Bank is a major player and ranks eighth in terms of assets among all existing banks. As of October 1, 2022, almost 45 billion UAH of the funds of the people were concentrated there..
Therefore, a procedure was needed that, if necessary, would allow the transfer of the bank to state ownership as painlessly as possible for the entire market – without panic and outflow of depositors.
Is this idle speculation, or is there official confirmation? Rumours that law #2643-IX was adopted to get the opportunity to nationalize Sense Bank were confirmed by Roksolana Pidlasa, MP for the ruling Servant of the People party. In an interview with the Telegraf newspaper, she said that the law was developed specifically for the former Alfa Bank. "The procedure is as follows: The National Bank formally declares it insolvent, then recapitalizes it, after which nationalization follows. It does not mean that the bank will stop working. It is quite stable. The government will not withdraw it from the market," said Pidlasa.
What is the main difference between the case of Alfa and the fate of other russian assets? Foremost, in the position of the shareholder, which can be called constructive.
Mikhail Fridman is desperately fighting for preserving the status of a "good russian" and therefore is ready not only to transfer his bank to the state, but even to continue financing it.
In addition, any perturbations with such a large financial institution are fraught with social and sectoral consequences.
Who are the clients of Alfa/Sense Bank? The deposit portfolio was generated mainly by individuals. The share of retail deposits in the bank's deposits is over 68%.
Before the war, the bank actively lent to agriculture, mining, fuel and energy complex, and retail.
Among its clients are Ukrgasvydobuvannia, AgroGeneratio holding, Energoatom, Interpipe, Kernel, Astarta, and Nikopol Ferroalloy Plant (data from open sources – Mind).
The bank is also an active participant in the 5-7-9 state programme. For all the time of its existence, it has issued UAH 2.4 billion in loans.
What is the status of the russian (ex?) shareholders of the bank? Immediately after February 24, when the full-scale invasion started, it became clear that the owners of Sense Bank would be forced to look for ways to save the bank and protect it from confiscation.
Back on February 28, the European Union imposed personal sanctions against the two main shareholders of the bank, Mikhail Fridman and Pyotr Aven (both have russian citizenship). As of January 1, 2022, they owned more than 45% of the bank's shares (hereinafter – data on beneficiaries provided by the NBU).
A few days after this decision, the bank's press service announced that the stake of sanctioned people who indirectly own shares of Alfa-Bank Ukraine will be transferred to the ownership of individuals and legal entities – residents of Ukraine, agreed with the NBU.
"Negotiations with large Polish and Ukrainian companies, private investors are underway. Large European and American funds and companies remain the majority owners of the bank. This decision will remove reputational risks against the background of sanctions restrictions on two individual shareholders," the bank said in a statement.
However, the ownership structure has not changed significantly. By April 21, 2022 (this is the "latest" data on the beneficiaries), Fridman and Aven still owned 45% of the bank's shares. At the same time, almost 41% stake was concentrated by Andrei Kosogov (a russian citizen). He was one of the co-founders of Alfa Group, which includes Sense Bank. Kosogov received shares from two previous shareholders of the bank – German Khan and Alexei Kuzmichev.
Do they carry out operational management? Officially, no.
Since April 21, all russian owners have lost the right to vote on the bank's shares. The functions of Sense Bank’s key owner were transferred to Simeon Dyankov.
"The shareholders were suspended from any participation in the management of the bank. The right to vote on the shares of the sanctioned shareholders of Sense Bank (the successor of Alfa-Bank Ukraine – Mind) was granted to Simeon Dyankov, former Minister of Finance and Deputy Prime Minister of Bulgaria, the current chairman of the Financial Risk Group in the London School of Economics," the bank's press service said in a comment to Mind's request. Dyankov still manages the bank as a trustee. On October 13, the National Bank extended the term of his office.
At the same time, Fridman, Aven and Kosogov have been under sanctions of the National Security and Defence Council of Ukraine (NSDC) since October 19, 2022. The restrictions were put into effect by President Volodymyr Zelensky’s decrees No. 726/2022 and No. 727/2022.
By the way, in October, the NBU announced that it had banned Andrei Kosogov from obtaining a significant stake in the capital of Sense Bank. As the National Bank explained, on April 15, the regulator recognized Kosogov as the owner of an indirect qualifying stake in the bank's capital equal to 40.96% of the authorized capital. At the same time, the NBU stated that Kosogov received a (direct – Mind) qualifying holding without the approval of the National Bank and in violation of the requirements of Ukrainian legislation.
Why was renaming necessary? The decision to rename the bank was made to distance itself from the association with the aggressor country and to avoid major image losses. It was made in June by the bank's board.
The Sense Bank brand was chosen as the new name. It is consonant with the Sense mobile application, which the bank has been developing and promoting for several years. In September, the NBU approved amendments to the articles of Alfa-Bank to rename it Sense Bank. In fact, the financial institution started to work under the new name on December 1.
What is this billion that was proposed to be injected into the bank? In September, The Wall Street Journal reported that the bank's shareholders wanted to replenish its capital by $1 billion. Subsequently, the plans for additional capitalization for this amount were confirmed by Roman Shpek, Chairman of the bank’s Supervisory Board. In his words, the money is needed to maintain the capital adequacy ratio of the bank, as well as to participate in the financing of the economy and priority projects of the Cabinet of Ministers.
A month later, in October, Mikhail Fridman publicly confirmed his readiness not only to capitalize his brainchild, but also to "donate" it to the state if necessary. He sent a letter to the head of the NBU Andriy Pyshny, in which he complained about the planned information attack on the bank, which could harm not only the financial institution, but also its customers.
In doing so, Fridman said that he agrees to maintain the stability of the bank and intends to "inject" $1 billion into it. If the Cabinet of Ministers and the NBU decide that Sense Bank should have another owner (for example, the state), he would "transfer the shares of the bank absolutely free of charge."
However, there is one "but". Shareholders cannot physically carry out such a large replenishment of capital now because they (as well as their money) are under sanctions. By the way, The Wall Street Journal, referring to informed sources, has written that Fridman wants in exchange for the additional capitalization of the bank to achieve the cancellation of sanctions imposed on it together with the EU by the UK authorities. The banker himself denied these assumptions.
What does the future hold for Alfa / Sense bank? So far, Sense Bank is in limbo. As the press service of the financial institution has told Mind, the shareholders are still ready to capitalize the bank from their own funds.
"Today, we are actively working with the European Commission, the relevant authorities of the Principality of Monaco, as well as with the UK regulator to unfreeze $1 billion. After all, the funds are in Monaco, but the bank is British (formally – Mind). In addition, [Mikhail] Fridman has applied for a licence from the Financial Sanctions Department of the UK Treasury. This licence will allow transferring funds for additional capitalization," the official comment of the bank said.
After receiving the decisions on unfreezing the funds, Sense Bank will submit a full package of documents to the NBU for approval of the capital increase. The bank wants to use the money injected into the capital for post-war recovery and lending to key sectors of the economy, infrastructure, and social sphere.
"We will also propose to make decisions that will provide Sense Bank with an equal competitive environment for its development in relation to other market participants," the press service of the financial institution clarifies.
Some financial indicators of Sense Bank, UAH billion
| As of 1.01.2022 | As of 1.10.2022 | Change, % | |
| Assets | 7.97 | 5.75 | -27,92 |
| Equity capital | 12.91 | 8.68 | -32,76 |
| Loan portfolio | 60.33 | 50.66 | -16,04 |
| Private deposits | 48.91 | 44.75 | -8,51 |
| Net profit | 2,46 (as of 1.10.2021) | -4.32 | х |
| Refinancing from the NBU | 8.62 | 4.73 | -45,07 |
NBU data
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