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Going against the grain – Cargill (USA) & Delta Bank

March 18, 2015

On 3rd March the National Bank of Ukraine dramatically hiked interest rates from 19.5% to 30% overnight, as part of a pick ‘n’ mix bag of measures to help support the currency.

That same day, the NBU announced that Delta Bank, then the 4th largest bank in Ukraine by way of assets, had gone into temporary administration and was part of the cleansing of the banking system of insolvent banks.

For months the NBU had been trying to find a way to keep Delta Bank running, as its insolvency could have forced a run on the banks – however with the headlines naturally concentrated upon the dramatic rate increase, it was thus not a bad day to bury bad news regarding Delta and the liabilities the State would have over deposit guarantees.

Like comedy, everything is in the timing.

Delta Bank was/is owned 70% by Nikolai Lagun and 30% by US agriculture group Cargill via its Ukrainian enterprise.

What is less well known is that on 5th February, those in Kyiv authorised the transfer of loans from 9 “troubled banks” to other lenders.  Amongst those authorised were Cargill Financial Services International – those loans transfered in excess of $100 million.

Thus Cargill’s Odessa based interests – Ilichevsk Grain Port, Stroybud Illichivsk, Yablunevy Dar and Tank Trans – were offered new loans directly with Cargill Financial Services International and can no longer be classed as “debtors” to Delta Bank during its temporary (or perhaps permanent) insolvency.

All of this occurring prior to a recent changes in Ukrainian banking legislation, increasing the liability of bank owners.

Bravo Cargill – its shareholders should be proud that it managed to mitigate its liabilities as part owner of Delta Bank almost entirely.  Unfortunately, the society in which Cargill’s Odessa assets are located and operate, is now forced to pick up the State guarantee tab for the Delta Bank depositors who have lost out.

Ergo,  despite no inference of anything illegal occurring, there is indeed reputation damage to Cargill.  Naturally it rubs against the grain somewhat.

So, having managed to salvage in excess of $100 million, whilst leaving the tab for many of those employed by the company, those within its supply chain, and for the local population to pick up – whilst also avoiding the newly imposed legislative liabilities for bank owners – perhaps a little gesture of goodwill would be in order lest such a story gather yet more local momentum, recognition and umbrage?

For a chump change (and probably a tax write-off), as well as investing in Cargill’s future local personnel, and also uplifting the “Brand USA” image, perhaps a charitable overhaul of Odessa Agriculture University’s IT and laboratories would be worthy of consideration?  A dozen annual agricultural scholarships to US universities?  Some goodwill tangibly sown back into the local community?

Naturally this blog has to declare an interest, and recognises that this entry is perhaps slightly biased – not being a shareholder in Cargill, but being a taxpayer that is left to pick up the State guarantee tab.

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