Trust no one

Quite often I speak at various conferences on restructuring, and I usually speak about best practices, case studies, practical tools. But today I want to discuss why - given all the efficient practical tools and examples - restructuring in Russia still does not work well - and is either completely ineffective, “paper” restructuring or slide into the default scenario very soon.

To my mind, there are several reasons for that, - it is important to understand them, in order to have a more holistic, more correct picture of the world at least, and may be - to do more efficient restructurings. The reasons are the following:

1. Lack of trust

I was fortunate enough to work with both Russian banks and borrowers, and foreign ones. In a foreign business environment, it is customary to trust partners. Trust is neither a sign of weakness, nor softness in negotiations, nor unprofessionalism. Trust in the nature of business in Western European and American traditions. In Russia, this seems totally different. We are not used to trust. In the recent past our way of doing business was radically redrawn at least twice - first by the creation of the USSR, then in modern Russia, and each such revolution could not help adding trust.

Ironically, I work in a bank called Trust. But the motto of the Russian restructurings seem rather the opposite - "Trust no one", do not trust anyone, be ready for betrayal, deception and a knife in your back.

It is interesting that just the other day online discussion platform Transforma#1 (created in partnership with A1) held a conference on maintaining trust as a source of growth in business value.

2️. Strategic myopia, short-term forecasting

Most borrowers and creditors have very short planning horizon: 1-3 years. Outside this horizon, too significant changes may occur in the exchange rates, sanctions, political situation, activity of law enforcement agencies, etc. And these planning restrictions often come into conflict with the needs of real restructuring, which usually should include not only a change in the payment schedule, but also the transformation of the borrower's business model, its recovery, which may require more time.

3️. Discredit of the parties to the restructuring process

The banking community and the regulator itself have discredited themselves quite significantly in the recent past: first of all, by defaults and multiple violations in the largest banks. Many borrowers consider the phrase "loan repayment is for cowards" to be their "rule of thumb" - and the larger the borrower, the more convinced he is of the rule. Not only banks, but also borrowers have discredited themselves in the face of banks. And all this is happening against the background of continuing public rejection of capitalism and entrepreneurship. Until now, law enforcement agencies and courts perceive business risk and losses as evidence of wrongdoing, which naturally does not contribute to the development of small business and the business environment in general. At the same time, state capitalism is actively developing and expanding. We see an ever-increasing share of the state's participation among both borrowers and banks; among top ten banks, there is not a single private Russian one. And the State plays by its own rules, in which preference is given to regulations and procedures - for example the bankruptcy law - rather than an incomprehensible out-of-court restructuring, which still needs to be negotiated.

What to do next?

Similar to psychoanalysis, where it is often believed that all problems arise from our childhood, in the field of restructuring we will be under the influence of the “childhood traumas” of Russian business for a long time, and the problems will not go away easily. Every banker and every borrower, when making decisions on restructuring, will act in situ - according to the specific situation, specific problems and risks. And if this banker (and the credit committee) believes that the borrower should not be trusted, no one will agree on restructuring - “for the sake of science” - and the default scenario will be implemented. It seems to me, and I personally tested this tool on many cases, effective restructuring (in conditions when the borrower is really ready to cooperate and the bank has resources for restructuring) is viable only with the help of an independent party, an independent professional consultant who can give his professional opinion on the borrower, on the sustainability of its business, its prospects and the efficiency of restructuring. And this does not mean a lack of professionalism in banks. No matter how professional the bank is, it is obviously one of the parties to the process, it is biased "by nature", it is not independent - from forecasts of demand in a particular industry, to the assessment of assets and professionalism of management - and this will never allow the bank to make an objective decision, especially on restructuring.

I have worked quite a lot as a consultant, in various companies, and I know this business from the inside - there are enough of its own nuances, and the choice of such restructuring consultant shall be made very responsibly and reasonably - but without such an independent party, effective restructuring is practically impossible.