Editor’s Note: Graham Stack and Andrii Ianitskyi are the authors of “Privat story: The rise and fall of Ukraine’s largest bank,” a book looking into the history of Ukraine’s largest bank — PrivatBank, created by Ukrainian oligarchs Ihor Kolomoisky and Gennadiy Boholyubov.
The night from Dec. 15–16, 2016, was frosty and clear. Twenty million clients of Ukraine’s largest bank, PrivatNank — half of all Ukraine’s adults — were fast asleep when the fate of their savings was decided in the presidential administration.
The liabilities of PrivatNank to its customers in 2016 amounted to Hr 195 billion, or about $7.5 billion. The lion’s share — more than two thirds — were the deposits of ordinary Ukrainians. The sum is enormous. Ukraine spent the same amount that year on roads, pensions and social benefits taken together.
Could the bank meet its obligations? The National Bank of Ukraine — the regulator of the banking system — had belatedly understood that the bank was a financial pyramid with a balance-sheet hole of Hr 113 billion, and that this hole was growing.
The owners of the bank disputed this assessment, and insisted that all problems were temporary or created deliberately by the central bank. The negotiations had dragged on for 18 months. During this time, the NBU closed down over 80 other banks. But Privat stood alone. The officials did not dare to touch it. Over 25 years, the bank had reached a size that made it the cornerstone of the national financial system.
So, long after midnight on Dec. 16, on the fourth floor of the presidential administration, the many months of talks reached an end. A deal was struck — and symbolically marked by opening a bottle of white wine.
Billionaire PrivatBank owners Igor Kolomoisky and Gennady Bogolyubov agreed to transfer the bank peacefully to the state, according to a special procedure that would safeguard the nations’ savings.
The agreement was set down in a letter one page in length written by the bank’s main shareholders to Prime Minister Volodymyr Groysman. The legal status of this letter raises questions, and it remained a secret to the general public for another six months.
In the evening on Sunday, Dec. 18, the Cabinet of Ministers met urgently and secretly to approve the decision. And on Dec. 21, the Ministry of Finance bought the bank from the Fund for the nominal Hr 1 — the equivalent of 5 U.S. cents.
Five years previous, the owners of PrivatBank had valued the bank at $6–7 billion: in Ukraine the bank controlled more than a third of bank deposits, there were subsidiaries in Russia, Georgia, Latvia, Italy, Portugal, and Cyprus, there was an extensive network of branches with 20,000 employees, the most advanced IT technologies and Internet banking ensuring state-of-the-art service. Over 5 million people used the online payment system Privat24.
And now this vast financial machine was sold to the state for a nickel.
Andrii Ianitskyi and Graham Stack’s book “Privat story: The rise and fall of Ukraine’s largest bank” currently is only available in Russian and Ukrainian but soon there will an English version as well. (Courtesy)
It was not easy to write a book about PrivatBank. Every second person we tried to talk to about the bank suggested we “meet again in 30 years’ time” or simply declined. Others requested anonymity. And one former employee asked for help in entering a witness protection programme.
All the more valuable were the people who did agree to talk to us: Former CEO Sergei Tigipko, current CEO of Privatbank Oleksandr Shlyapak, finance minister at the time of nationalisation Oleksandr Danyluk, current head of the National Bank of Ukraine Yakov Smolii, deputy head of the NBU Kateryna Rozhkova, head of the State Deposit Guarantee Fund Kostyantyn Vorushylyn. Others such as former top managers of PrivatBank Oleg Gorokhovskii and Dmitrii Dubiliet corresponded with us by email. Altogether we recorded over 40 exclusive interviews.
One author flew to Geneva to meet with the former shareholders. But on arrival, they told him they had to postpone, but would pay for all extra hotel and travel expenses if he waited. Obviously he rejected the potentially compromising offer. The interview did not take place, but we obtained their comment via lawyers.
We also drew on exclusive secret data detailing the lending practices of PrivatNank 2014–2016. The authors received this data before nationalization, at a time when any mention of billions of dollars in insider lending met with furious denials and threats of legal action from the bank.
Using this data, we analyzed the real financial situation at the bank — and discovered that almost all of the bank’s loans totaling over $5 billion had gone to brassplate firms. Despite the considerable personal risks, we published our findings — six weeks before the authorities came to the same conclusions.
The story of PrivatBank holds a mirror up to Ukraine’s contradictory development during the first 35 years of its independence: out-of-control oligarchs with private armies, corrupt officials, brilliant IT developers, charismatic managers, regional business clans, brash branding mixing the transgressive wit of Ukraine’s foremost crossdresser, Vera Sedyuk, with the deep wells of national pride, an electronic payment system revolutionising transactions combined with a Soviet-style branch-in-every-village network, global reach combined with a criminal core. Finally, the basic contradiction embodied in its name: originally intended as a Swiss-style ‘private bank’ for oligarchs, it had transmuted into the nation’s savings bank.
Our book is thus also a history of Ukrainian independence through the prism of the Privatbank: starting with the Soviet Komsomol students organisation, continuing through the economic collapse of the 1990s and the rise to riches of a select few, the credit boom years of 2000–2008 bringing brief prosperity to the people, the financial collapse of 2008, the era of total corruption under Viktor Yanukovych leading to the EuroMaidan Revolution and Russia’s invasion.
It concludes on an uncertain note: the nationalization of Privatbank was a necessary reform backed by the international community — but one that leaves most of Ukraine’s banking sector in state hands, and millions of citizens reliant on the state budget to pay out their hard-earned savings. Control of key industrial assets is once again up for grabs, dependent on decision in London courts. And no one has been prosecuted.
So ultimately PrivatBank was a pirate bank — but it was also an engine of change in Ukraine. This paradox is the crux of our book.
