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DE RUEHTA #0386/01 0630920
ZNR UUUUU ZZH
O 040920Z MAR 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4800
INFO RUCNCIS/CIS COLLECTIVE 1296
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0679
RUEHKO/AMEMBASSY TOKYO 1382
RUEHUL/AMEMBASSY SEOUL 0371
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RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0857
RUEKJCS/SECDEF WASHDC 0773
RUEKJCS/JOINT STAFF WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 04 ASTANA 000386 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
STATE PLEASE PASS TO OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EFIN EAID KZ
SUBJECT:  KAZAKHSTAN:  FATE OF LARGEST PRIVATE BANK UNCERTAIN 
 
REF:  ASTANA 0286 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  During February 17-20, Department of the 
Treasury Advisor Thomas Lanier held meetings in Astana and Almaty to 
assess the government's response to the global financial crisis.  A 
key element of the government's anti-crisis program is its support 
for the country's largest bank, Bank Turan Alem (BTA).  On February 
2, the government took a majority stake in BTA and replaced BTA 
Chairman Muktar Ablyazov with Arman Dunayev, the Deputy Chairman of 
Samruk-Kazyna.  Decreasing global commodity prices -- particularly 
for crude oil -- have severely depleted government revenue streams 
and dwindling reserves may ultimately impact the government's 
ability to maintain the solvency of BTA.  With Western bankers and 
economists encouraging Kazakhstan to liquidate BTA, it remains to be 
seen whether the government can indeed save this prominent financial 
institution.  END SUMMARY. 
 
BTA SUCCESS CENTRAL TO ANTI-CRISIS STRATEGY 
 
¶3.  (SBU) Kazakhstan's effort to rescue and stabilize Bank Turan 
Alem (BTA), the largest bank in the country, is central to its 
overall program to deal with effects of the global financial crisis. 
 An aggressive growth strategy, including excessive borrowing and 
investment resulting in substantial exposure to the inflated real 
estate and construction sectors, ultimately left BTA dangerously 
leveraged when foreign banks stopped issuing credit to Kazakhstani 
banks in August 2007.  Dwindling deposit levels brought on by 
decreased global commodity prices and an associated contraction in 
Kazakhstan's economic growth compounded the problems facing BTA as 
it struggled to raise the liquidity necessary to meets it 
substantial foreign obligations.  In response to the financial 
crisis, the government announced in October 2008 its intention to 
inject liquidity into four leading banks (BTA, Alliance, Halyk Bank, 
and KazKommerts Bank) through the purchase of a 25% ownership stake 
in each.  However, by January 2009, the severity of the financial 
problems facing the country's largest financial institutions, 
specifically BTA and Alliance Bank, necessitated a much larger 
infusion of cash.  On February 2, the government announced the 
purchase of a 78% ownership stake in BTA, followed shortly 
thereafter by the transfer of approximately $2.4 billion to BTA from 
the Samruk-Kazyna National Welfare Fund.  The government also took a 
majority stake in Alliance. 
 
TOP LEADERSHIP IMMEDIATELY RESHUFFLED 
 
¶4.  (SBU) The same day that the government took a majority ownership 
stake in BTA, it removed BTA Chairman Muktar Ablyazov from his 
position and named Samruk-Kazyna Deputy Chairman Arman Dunayev to 
replace him.  Former National Bank Chairman Anvar Saidenov was later 
named BTA's CEO. 
 
ABLYAZOV - SPECULATOR OR SCAPEGOAT? 
 
¶5.  (SBU) In an open letter to President Nazarbayev on February 9, 
ousted BTA Chairman Ablyazov claimed he was removed from his 
position by the government in an attempt to consolidate state 
control over private assets.  Ablyazaov's claims, however, failed to 
impress Kazakhstan's leading financial authorities.  Financial 
Supervision Agency (FSA) Deputy Chairman Kuat Kozhakmetov told 
Treasury Department Advisor Thomas Lanier that the government 
decided to acquire 75 percent of BTA, because the bank was poorly 
managed.  "(Ablyazov) is a speculator, not a banker," said 
Kozhakmetov.  Meder Amatov of the European Bank for Reconstruction 
and Development told Lanier that Kazakhstani authorities first 
attempted to work with Ablyazov, offering him $1.25 billion for a 
25% ownership stake.  Ablyazov apparently refused this offer and 
instead said he would raise $1.25 billion on his own, in order to 
become majority owner of BTA.  In a separate meeting with Lanier, 
National Bank Chairman Grigoriy Marchenko maintained that Ablyazov 
did promise to raise the capital, but was not successful, and the 
 
ASTANA 00000386  002 OF 004 
 
 
delay this caused raised costs as the government continued to infuse 
the bank with capital to keep it solvent. 
 
BTA NOT ANOTHER YUKOS 
 
¶6.  (SBU) The government seems likely to keep Ablyazov out of the 
financial sector.  Marchenko told Lanier that Ablyazov "has 
definitely committed crimes" at BTA.  Marchenko also said that he 
had been notified by Russian authorities that Ablyazov used 
falsified customs documents to conduct over $600 million in 
transactions.  (NOTE:  Some claim that Ablyazov's assets in 
Kazakhstan are worth up to $5 billion, although Yevgeniy Vinokurov 
of the Eurasian Development Bank told Lanier that Ablyazov's assets 
have significantly declined in value.  END NOTE.)  "He is a habitual 
liar," Marchenko said. "Ablyazov thinks that he is smarter and 
better than everyone else," he added, warning Lanier to pass the 
message that the United States "should not give him asylum," should 
he request it.  "You should not treat this like another Yukos."  The 
government of Kazakhstan is not alone in its skepticism about 
Ablyazov.  Several bankers also believe crimes were committed at 
BTA.  "I expect that they will find evidence of criminal activity at 
BTA," ATF Bank CEO Alexander Picker told Lanier.  Ablyazov's 
whereabouts remain unknown, but it is suspected that he is in 
London, where, according to Marchenko, he owns a home.  Ablyazov's 
allies remain convinced that his removal and the bank's takeover was 
politically motivated -- a result of Ablyazov's support for the 
political opposition (reftel). 
 
EXTENT OF BTA'S FOREIGN LIABILITIES NOT KNOWN 
 
¶7.  (SBU) The multi-billion dollar question for new BTA Chairman 
Arman Dunayev is, how much does BTA owe to foreign creditors? 
Estimates range from $5-$14 billion, 80 percent of which is expected 
to mature in the next three years.  According to Citibank Kazakhstan 
Director Daniel Connelly, many of BTA's liabilities are in Russia, 
which Kazakhstani FSA authorities cannot access. "There is a $5 
billion hole in BTA's balance sheet, possibly $10 billion if you 
really look at the books," Connelly claimed.  ABN Amro Kazakhstan 
Chairman Rudi Geerdink told Lanier that the figure is more likely to 
approach $14 billion.  On February 26, Presidential Advisor 
Yermukhamet Yertysbayev alleged to the Ambassador that Ablyazov 
might have put slightly over $9 billion into "his foreign accounts." 
 He seemed to imply "personal accounts," but that point remained 
unclear.  The government may soon have to decide how severely to 
deplete its own reserves, which now total approximately $45 billion, 
to save the failing bank.  According to Connelly, the government is 
divided over whether or not to save the bank at all, which could 
possibly leave BTA's foreign investors in the lurch. 
 
DUNAYEV COMMITTED TO SAVING BTA 
 
¶8. (SBU) Amid a sea of stressed employees rushing back and forth 
with boxes of files, and surrounded by armed guards and camera 
monitors, a tired and disheveled Arman Dunayev emerged from his 
executive office on the top floor of BTA's headquarters in Almaty to 
greet Lanier.  Despite the difficulties he is facing, Dunayev 
sounded hopeful.  "The situation is very difficult and not only with 
BTA," he said.  "Of course, we could blame someone else for having 
taken on bad debts, or we could blame the global crisis, but our 
factories still work and our quality of life continues to go up." 
When asked about the government's takeover of Kazakhstan's largest 
banks, Dunayev sounded tired and defensive, as if he were repeating 
an argument he has had to make many times before.  "The government 
never wanted to nationalize the banks," he said.  "There was a 
serious debate inside the government about this question.  Even now, 
the situation is very divided."  Although clearly under intense 
pressure, Dunayev pledged that BTA would honor its commitments and 
defend the claims of its investors.  "Every bank must carry out its 
responsibilities, otherwise it sets a dangerous precedent" he said. 
"There is no possibility of liquidation or bankruptcy of the bank, 
because we must honor our responsibilities."  He did however 
acknowledge that BTA will work to renegotiate the terms of its 
 
ASTANA 00000386  003 OF 004 
 
 
obligations, and admitted that the government did not fully 
understand the extent of BTA's liabilities when it chose to acquire 
the bank.  Dunayev said, however, that President Nazarbayev and 
Prime Minister Masimov understand the significance of protecting the 
financial sector.  "The question now is, how much money do we need, 
and how much will be left afterwards?"  Commenting more broadly, 
Dunayev said that there is no immediate plan to draw down the 
National (Oil) Fund, although he indicated that the government would 
carefully examine the value of state pension funds.  "We cannot say 
that we are happy to be in this situation.  But we will keep at it 
as long as it takes to stabilize the banks" said Dunayev.  Sinking 
ever lower in his chair towards the end of the meeting, Dunayev 
sighed and asked Lanier, "Who can say for certain how much direct 
government support is necessary?  Did your government do the right 
thing with Lehman Brothers?" 
 
LOOKING FOR A STATEGIC RUSSIAN INVESTOR 
 
¶9.  (SBU) According to Samruk-Kazyna Executive Director Assel 
Nussupova, the government is currently looking for a strategic 
investor for BTA.  Deputy FSA Chairman Kozhakmetov confirmed that 
informal negotiations are ongoing with Sberbank Rossii (the Savings 
Bank of Russia).  According to Marchenko, Sberbank is "very 
interested" in BTA.  Visiting Astana in January, Sberbank Chairman 
German Gref made an offer to BTA that Marchenko said was rejected at 
the time "out of pride."  "They should have taken it then" he said. 
More recently, in early February, Sberbank representatives returned 
to Astana, this time in a much stronger negotiating position.  While 
the position of BTA is currently unattractive, Citibank's Connelly 
believes that Sberbank may be thinking long-term about a presence in 
the region.  In reference to Sberbank, Marchenko said, "they must do 
it now, or they will never acquire anything in this country."  ATF 
Bank CEO Picker said that Sberbank is still interested in BTA, but 
they want a $10 billion guarantee from the Kazakhstani government. 
Halyk Bank CEO Umut Shayakhmetova told Lanier that Sberbank has 
requested time to conduct due diligence.  This, according to 
Shayakmetova, may be related to BTA's significant foreign payments 
due in March, and Sberbank's likely desire to see if the bank does 
indeed gather the necessary resources to pay. 
 
WILL THEY STAY OR WILL THEY GO? 
 
¶10.  (SBU) Regardless of the final price tag for BTA, a more 
immediate concern is whether or not the Government of Kazakhstan 
will keep its pledge to maintain BTA.  ABN Amro's Geerdink reported 
rumors of talks underway in London which may be paving the way for 
the government to walk away.  Reporting that depositors had already 
removed from BTA as much as $700 million in the past several weeks, 
Geerdink said that if this continues, "soon there will be no bank 
left to buy."  However, he said, if BTA fails, "it will not be good 
for the country, because the government's credibility will be 
questioned." 
 
FAILURE IS AN OPTION 
 
¶11.  (SBU) The World Bank's chief economist in Kazakhstan, John 
Litwack, told Lanier that he has advised the government that since 
BTA is a private enterprise, there is no real risk to the 
government's reputation, and he has recommended that they pass on 
the losses.  Litwack noted that the existing loans were made without 
government guarantees.  "They should create an environment to allow 
the banks to default," he said, "then resolve the situation." 
Other prominent bankers agreed.  "Personally, in their place," said 
Halyk Bank's CEO Shayakmetova, "I would liquidate BTA."  In 
Shayakkmetova's opinion, liquidation could be managed in such a way 
to minimize the social impact.  HSBC Kazakhstan Chairman Seymen 
Munter told Lanier that he recommends that the government fully 
nationalize the bank, protect consumer deposits, restructure the 
debt to a minimum repayment term of seven years, and, if agreeable 
terms cannot be found, move the customers to another bank and 
liquidate the assets. 
 
 
ASTANA 00000386  004 OF 004 
 
 
THE BOTTOM LINE 
 
¶12.  (SBU) Kazakhstan's economic well-being is heavily dependent on 
commodity prices such as oil and minerals.  In 2009, government 
revenue is expected to fall at least eight percent short of its 
original target.  While the FSA and Ministry of Finance have 
promised not to cut spending for social programs, National Bank 
Chairman Marchenko told Lanier that the Kazakhstani economy "cannot 
hold out forever."  According to Marchenko, "If oil prices hold 
between $40 and $50 per barrel, we will be ok, but not booming.  At 
that price, our reserves will last us 18-24 months.  But if 
commodity prices continue to drop," he said, "things will become 
more difficult."  According to ATF Bank, GDP will contract 1.2% in 
2009 and this will be "a very difficult year."  Halyk Bank CEO 
Shayakhmetova agreed, saying that Kazakhstan will see more 
bankruptcies, banking consolidations, and mortgage defaults in the 
first half of 2009.  Over the long-term, however, forecasts are more 
positive.  According to ATF Bank CEO Picker, "The fundamentals of 
the Kazakhstani economy are still strong.  They still have oil, 
metals, and wheat."  Ultimately, the government will need to decide 
how to spend its increasingly limited reserves, and determine what 
price it is willing to pay to save the financial sector. 
 
¶13.  (SBU) COMMENT:  The Government of Kazakhstan finds itself in a 
very difficult position, having vowed to save its largest bank 
without a full understanding of its massive liabilities.  Decreasing 
revenue streams and increasing cash demands from other sectors of 
the economy will put pressure on the government to minimize its 
losses from BTA, which may push it toward liquidating the bank.  END 
COMMENT. 
 
HOAGLAND