INSIDE FINANCE: Bank Menatep's Rise and Fall A Black Fable for the 1990s

Last week the Central Bank recalled the banking license of one of the so-called "oligarchic" banks - Bank Menatep. At the same time licenses were recalled from Unikombank, Unibest bank and others, but none of them could claim to symbolize the decade the way Bank Menatep can.


The history of Menatep has been, in my view, a brilliant illustration of the history of the banking business in Russia: the roller-coaster career of a homegrown tycoon.


In the early '90s, not long before the government pulled the great currency swap, when Valentin Pavlov was prime minister, some unusual posters appeared on Moscow's streets.


The posters called on citizens to become shareholders. Not to invest money at high interest, (there was only one bank at that time called the Sberkassa) but to become shareholders. I myself know some families whose interest was piqued by that unfamiliar and attractive word, "share." Money that time had slowly but surely accumulated, as long as the Communists refrained from balancing the budget by printing worthless rubles. There was nothing to buy. The only place to invest money was the Sberkassa where, all Russian citizens remember, they could park their savings at 3 percent per annum.


The posters pledged that Menatep shares would yield 4 percent a year. The shares were sold not just by the bank but also by a trading house and even an investment company of the same name. However, these latter structures quit early on in the game.


This brilliant idea for selling shares had its origins in those halcyon days when Komsomol functionaries were getting rich on their computer boom. (Remember how, in the late '80s, the Scientific-Technical Youth Trading organization, or NTTM, set up offices all over Russia.)


The initial capital, in this case, was collected by means of cashing in on the goods shortages across the Soviet Union, shortages not only of computers but of everything. .


That allowed Menatep owners to leap forward as leaders in the banking business without even needing to play the then very profitable ruble-dollar games made possible by inflation. Menatep, perhaps fastest of all, learned how to make money on budget money. In recent years government at all levels has unsuccessfully tried to put an end to the authorized banks system. Menatep was the first of these banks.


In 1993, Menatep co-owner Leonid Nevzlin, used his wiles to insinuate himself into the Finance Ministry. The officials were swept off their feet - and Menatep made money serving budget accounts, getting Finance Ministry money on currency accounts and even sometimes giving high-interest loans to the government.


It then came to pass that the leading figure at Menatep - Mikhail Khodorkovsky - set aside the banking business to work in his original speciality, chemistry, for which purpose the company snapped up an oil major, Yukos. The purchase of this company was, in my opinion, the most horrendous episode in Russia's tangled privatization process. The oil giant was bought by the Laguna company, registered in the town of Taldom in the Moscow region a mere two weeks prior to the privatization auction of Yukos.


After this success, Messrs Khodorkovsky and Nevzliny could be called real oligarchs. They practically forgot about banks - after all, banking assets during this time of financial stability brought in little return.


Bank Menatep's fate was now to become a pocket bank for the oil corporation. Almost two-thirds of the bank's assets were lumped in with Yukos' assets, or handed over to Yukos in the form of credits, or used as collateral for credits taken out by Yukos. After the fall of world oil prices, when Yukos began to struggle to meet its obligations, the bank found itself in a tight spot. When the financial crisis hit last summer, Menatep's internal state was already sufficiently sickly that it could not hope to survive.


Bank Menatep's final pages were no less fearful than those that had come before. On Aug. 17, 1998, the bank was due to pay foreign creditors $80 million, which, of course, it did not have. It was precisely in order to rescue banks like Menatep that the government and the Central Bank imposed a three-month moratorium on Russian banks paying foreign debts.


But this did not help in the long run.In the end, the bank's balance sheet was bare of anything worthy of attention.


Thus, the remaining clients and depositors of the bank have been left to their fate, same as the shareholders who were seduced in the early 1990s. For shareholders it was easier - they were duped earlier. As soon as inflation got going again, the earnings on their shares dropped to 4 percent per annum, in rubles of course.


Irina Yasina was Central Bank spokeswoman under former Central Bank chairman Sergei Dubinin.