Iulian Ernst in Bucharest -

Often criticised for being too cautious, the European Bank for Reconstruction and Development (EBRD) has taken the bold step of calling for a shareholder meeting to take back control over Victoriabank, the third largest lender in Moldova, whose banking sector has suffered a series of massive frauds.

The EBRD’s call on August 7 for an extraordinary general meeting (EGM) of shareholders in Victoriabank, in which it holds 15.06% of the shares, is designed to elect a new supervisory board and restore corporate governance at the bank.

Victoriabank is one of several banks that have been the target of fraudulent takeovers. Last year, in what some in Moldova are dubbing the crime of the century, around $1bn was taken out of Banca de Economii, Banca Sociala and Unibank, given out in loans to companies linked to one of Moldova’s richest businessman, Ilan Shor, and then transferred into offshore accounts, according to an investigative report commissioned by the central bank and carried out by US audit firm Kroll. Shor maintains his innocence, though few believe he should be the only suspect.

Minority shareholders in Victoriabank have not had formal control over the bank’s management since last autumn. Victoriabank was “raided” – the term used in the former USSR for a fully or partly illegal attempt to take over a company – by groups planning to take control of the bank, head of the board of directors Vlad Turcanu warned in September 2014, pointing to a couple of overnight court decisions that fully blocked shareholder control.

Hijacking Moldova’s weak and corrupt legal system is a common tactic of raiders. In this case, the Buiucani Court invalidated, at the request of a minority shareholder, the supervisory board’s decision to dismiss the managing board, the investigation into its activities and invalidated some of the board’s decisions. The Buiucani Court also suspended the supervisory board and renewed the contract of the managing board, thus leaving the shareholders with no formal control over the bank.

The agenda proposed by the EBRD includes the early termination of the powers of the current supervisory board of Victoriabank, which has been suspended by court order since September 2014, as well as the election of a new board.

Since the EBRD holds only 15.06% of Victoriabank’s shares, versus the 25% stake required to get an EGM scheduled, its request for a meeting depends on the support of other shareholders of the bank. None of the other shareholders have so far yet endorsed that call nor even commented on it, though some concerned, yet so far anonymous, shareholders asked the multilateral lender to step in and help restore corporate governance in a letter circulated in the media last October.

The political tone of that letter, though, has raised some questions. The letter was very critical of Vladimir Plahotniuc, the vice-president and most influential leader of the Democrat Party. The letter, without revealing evidence of nor any implication of Plahotniuc’s involvement as the mastermind of the raider attack at Victoriabank, blamed him for the takeover attempt. However, Plahotniuc’s untold wealth has been the subject of numerous investigations, some by bne IntelliNews.

In another open letter, published by jurnal.md, with no political bias this time, the bank’s former supervisory board members, including the board’s president and bank founder Victor Turcanu, asked the government to intervene and stop what they called the “raider attack” facilitated by the bank’s managing board headed by Natalia Politov-Cangas.

EBRD seeks to consolidate stake

The EBRD has already received approval from the central bank to increase its stake in Victoriabank up to 100%. But a deal for just a majority stake is far from a done deal.

In a letter sent to the Moldovan authorities on June 29, the EBRD complained about legislative obstacles being put in the way of its attempt to increase its stake in Victoriabank.

Alpha Bank Romania, owner of 12.5% of Victoriabank, would be a potential seller to the EBRD, according to sources on the financial market. But current trade regulations at the Moldovan Stock Exchange do not allow for the direct sale of stakes, explained EBRD Financial Institutions Group Director Henry Russel. “The EBRD has offered to work with the Moldovan authorities to establish stock exchange rules that would permit a block sale of shares between two parties in a transparent manner that is consistent with European and international best practice,” he added.

At the same time, the EBRD has already set up a special-purpose vehicle in order to take over Victoriabank shares contributed by other shareholders as capital. But the government invalidated such a procedure by an amendment to Law 550/1995 on financial institutions, prompting protests from the EBRD. The new regulations, passed on April 12, blocked its plans “in what appears a deliberate and cynical move,” the EBRD said on June 29 in a letter leaked to the local media.

The country’s new premier, Valeriu Strelet, assured the EBRD resident representative Julia Otto on August 10 that the government will remove an amendment to the financial institutions law that is blocking the bank’s attempts to increase its stake in the lender. Those obstacles will be removed if a bill drafted by the government and under public debate until August 12 passes. The bill still needs to be endorsed by parliament.

Russel said that restoring previous procedures and allowing bank shareholders to contribute their stakes as equity capital in third companies, conditional on the central bank’s endorsement and in a transparent manner, would be an encouraging step taken by the new government of Prime Minister Strelet, besides the other encouraging steps announced by the central bank related to the liquidation of the three troubled banks involved in the $1bn fraud.

Dental problems

The EBRD currently owns 15.06% and Alpha Bank Romania holds 12.5% of the bank. The family of the bank’s founder Victor Turcanu – including his former wife Valentina Turcanu, Valentina’s sister, Galina Proidisvet, and Galina’s daughter, Artemenco Elena – control some 25%.

Yet the bank’s largest shareholder is Insidown Ltd, registered in Cyprus, with 39.2%. The final beneficiary of the stake is a listed as Dr. Peter Paul Fischer, born Tabsch. Victoriabank reports list Fischer as a dentist who operates in Bucharest and Berlin. Many doubt he is the final beneficiary of such a large shareholding, given the financial resources necessary to buy such a stake. Another key question is why Fischer would invest in a Moldovan bank in the first place.

Born in Lebanon in 1962, he studied in Beirut until he was nine and then moved in 1971 to West Berlin, where he completed high school. He later moved to Romania to study medicine in Bucharest between 1982-1987. After practicing medicine in Germany, Fischer later opened a clinic performing tooth implants in Bucharest.

Mold-street.md quotes public registrars in Cyprus as disclosing that the owners of Insidown Ltd are Belserve Consultants Limited and Vaspaco Properties Limited, both related to major Russian companies. Greek Real News revealed that the two were involved in other money-laundering cases such as a €10.2bn fraud committed in Greece in 2012 allegedly by three high-ranking politicians.

On November 13, 2014, 38.3% of Victoriabank’s shares were sold in 14 deals at a price of MDL19.5 per share. The total price was MDL186.7mn (€10mn). The buyer was Insidown Ltd. The sellers were firms reportedly related to Veaceslav Platon, known as the most active raider in the former Soviet region, who in the past has purchased stakes from a non-transparent entity reportedly controlled by Vlad Plahotniuc, the deputy head of the Democrat Party of Moldova.

Victoriabank first attracted EBRD funding in 1995 and began adhering to the corporate governance standards required by multilateral lenders. However, in 2005-2007 murky shareholders took control of Victoriabank’s supervisory board. In 2005, the investment fund Danube Fund, owner of 28% of Victoriabank, was closed down for a term. The 28% stake was then purchased in a series of non-transparent deals and without the approval of the central bank, which at that time was necessary for deals involving more than 10% of the bank’s shares. The buyers were offshore companies reportedly controlled by Vlad Plahotniuc. In 2006, a group of new shareholders exerted pressure on Victor Turcanu, at the time the head of the managing board. Turcanu was arrested in 2005 on bribery allegations, and eventually resigned in 2007.

The bank’s financials have gradually deteriorated under the new head of the management board, Natalia Politov-Cangas. Invoking the disappointing results of 2013, the shareholders gathered in the spring of 2014 to investigate the management. Politov-Cangas’ term was scheduled to expire in September and the shareholders decided not to renew the contract. The supervisory board took steps to replace the management, but the court decisions put an end to their attempt.

The EBRD’s call for an extraordinary shareholders meeting is supposed to be the first step toward the restoration of legitimate corporate management at Victoriabank. The EBRD’s newfound resolve is being applauded – even if it has come almost 10 years after the first troubling signs emerged at the bank.