Mukhtar Ablyazov, BTA's former chairman, is under investigation over the loans.
In the last few
years, big banks have found many surprising ways to lose billions of
dollars by making loans that turned sour. But few can match the odd
tale involving Kazakhstan and a little-known bank that many Western financiers wish had remained so to them.
From 2003 to 2008, the likes of Credit Suisse, Morgan Stanley, Royal Bank of Scotland, ING
and others funneled more than $10 billion in loans into Kazakhstan's
largest bank, Bank Turalem, as the large Central Asian country enjoyed
a growth boom spurred by its rich deposits of oil and natural gas.
many of these loans are now bust that many foreign banks are facing
write-offs of as much as 80 percent of their value, prompting
investigations into why the loans went so bad so fast, according to
officials at Bank Turalem, which was taken over by the government
earlier this year. Hoping to become the dominant bank in the region,
BTA, as the bank is known, cast its eye well beyond Kazakhstan and lent
billions of dollars to finance vast real estate projects in Russia and
Ukraine, as well as offshore companies with vague business plans and no
trading histories to speak of, according to executives at BTA who did
not want to be identified because of the sensitivity of the matter. The
money went to companies with names like Best Catch Trading and Sandown
Holding, based in places as diverse as the Seychelles, the British
Virgin Islands and England, that offered up little in the way of
collateral, according to these executives.
Among other things,
prosecutors in Kazakhstan and a team of international lawyers and
accountants hired by Bank Turalem are investigating whether the foreign
banks may have unwittingly financed a scheme by BTA's former chairman,
Mukhtar Ablyazov, to direct between $8 billion and $12 billion worth of
BTA loans - about half of the bank's loan book - to companies that he
secretly controlled, according to lawyers representing BTA as well as
prosecutors in Kazakhstan.
Mr. Ablyazov denies the allegations,
insisting that the loans were proper and that the investigation is
politically inspired because he has been a critic of the government.
Ablyazov is a longtime political opponent of Nursultan Nazarbayev,
Kazakhstan's authoritarian president, and he fled Kazakhstan for London
just days before the government took over BTA this February, fearing a
Whether the investigation reveals the
foreign banks to have been careless, naÃ¯ve or hoodwinked about how the
loans would be used, the losses point to a recurring problem for
supposedly smart and sophisticated international bankers. In past
decades, international banks have rushed headlong into hot markets like
Mexico and Argentina, and later into Thailand and Russia, only to
suffer huge losses.
Ignoring or forgetting lessons learned from
those debacles, institutions poured billions of dollars to help finance
property developments in Ireland, the global expansion of Icelandic
banks and subprime mortgages in the United States, only to see much of
that money evaporate.
"Capital markets have no memories," said
Richard Portes, a professor of economics at the London Business School.
"Bankers simply charge premium spreads high enough to take defaults and
still end up, on average, with profitable lending."
embroiled in arduous talks with BTA over restructuring their debt in
hopes of trimming their losses, foreign bankers claim they did their
homework before making the loans, although none would publicly discuss
their relationship with BTA and its controversial chairman.
the accounting firm that is advising a steering committee representing
the foreign banks, did not respond to a request for comment. In a
statement, Credit Suisse, which lent close to $1.1 billion to BTA, the
most of any bank, said its current exposure to BTA was immaterial to
its financial condition and that "all transactions with BTA went
through established due diligence procedures." But, while BTA may have
been the flavor of the day for international lenders, questions were
being raised about it closer to home.
"BTA was one of the least
transparent banks here, and there were a whole bunch of transactions
prior to the seizure that indicated extremely lax banking," said
Michael Carter, the chief executive of Visor Capital, an investment
bank based in Kazakhstan. "But Kazakhstan was very sexy at the time,
and foreign banks were just shoveling in money, so much so that that
banks here had more money than they knew what to do with."
Mr. Ablyazov, 46, a small, energetic man who made his first fortune
importing cars from Lithuania, maintains that the loans that BTA made
were legitimate. He claims that the $9 billion charge against profits
that the bank declared after he left - as well as the government
takeover of the bank - represent the final stage of a plot by President
Nazarbayev to wrest BTA from him.
"We have been a profitable and transparent bank, with $538 million in profits in 2007," said Mr. Ablyazov in an interview through an interpreter in London.
he sees it, the robust support he garnered from international banks was
an endorsement of his plan to remake BTA in the image of HSBC,
the hugely successful international bank that grew from its roots as a
colonial bank financing trade between China and Britain. He scoffs at
the allegation that his ultimate aim was to siphon off profits.
"We would do all this just to misdeal money? That would be a strange criminal to make a plan like this," he said.
may be some time before investigations determine if Mr. Ablyazov did
anything illegal at BTA or is just the target of a political witch
But BTA has already filed a civil suit against Mr.
Ablyazov on a narrower claim in a British court that he misappropriated
$295 million in bank funds last year; a judge ruled this month that the
charges were serious enough to support the continued freezing of his
What is not in dispute is that, even by the loose
standards of the credit boom, few banks lent as aggressively as BTA.
Between 2003 and 2007, the amount of its loans outstanding grew by an
extraordinary 1,100 percent. Like many other banks in less developed
countries, BTA relied heavily on foreign funds, as opposed to customer
deposits, to propel its loan growth - so much so that its ratio of
loans to deposits peaked at 3.6 to 1 in 2007, one of the highest
anywhere in the world.
Mr. Ablyazov maintains that BTA would
have paid off its loans had he remained at the helm and that the
enormous charge-off was a ploy by Mr. Nazarbayev to seize control of
BTA and damage a political rival's reputation.
Lawyers and BTA
executives contend that many of the offshore companies were controlled
by Mr. Ablyazov, and BTA lawyers are now trying to determine whether
the loans were used to provide billions of dollars to Mr. Ablyazov's
own real estate projects - in particular, a 4,700-acre development
outside Moscow in which BTA has a $1.5 billion credit exposure.
his title was chairman, Mr. Ablyazov took a hands-on approach when it
came to the bank's lending, even sitting on the regional credit
committee that oversaw many of the questionable loans.
2008 report on BTA, Ernst & Young, the bank's auditor, highlighted
this unusual arrangement, citing it as a conflict of interest that
"potentially contributed to the issuance of loans to offshore
companies, which became uncollectible in 2008."
disputes this claim, saying that he had headed this committee for three
years without complaint from his auditor, and that the bank's credit
operations were transparent.
Nikolay Varenko, the deputy chairman
of BTA and the executive leading the bank's internal investigation into
Mr. Ablyazov's activities, disagrees.
"The bank was like an investment fund for his own personal projects," he said.
Mr. Ablyazov, the question of how he deployed BTA's loan book is just
the latest in a series of battles he has been waging with President
And while he may well have his enemies, few question his bravery.
2001, he and several other reform-minded businessmen founded the
Democratic Choice of Kazakhstan Party, the first opposition party to
challenge Mr. Nazarbayev on the ground that he and his network of
family insiders were monopolizing economic and political power.
year later, he was sentenced to six years behind bars on charges
related to his time as head of the government electricity company. Mr.
Ablyazov claims the charges were politically motivated. He served a
little over a year in Kazakhstan prison, where he says he was subjected
to numerous beatings and other forms of torture.
from international human rights organizations, Mr. Ablyazov was
released in 2003. In 2005 he took full control of BTA.
days, he rents a 15,000-square-foot mansion on Bishops Avenue in
London, one of London's most exclusive neighborhoods, where security
guards stand day and night.
Unlike other oligarchs here, Mr.
Ablyazov keeps a low profile in London. He says that his ultimate aim
is to overthrow Mr. Nazarbayev, even though he could be caught up in
British courts for years to come.
"I am just here temporarily," he insisted. "In the end I will return to Kazakhstan."