Actuality December 10, 2007

   Western investment banks came to the Russian market almost in full complement: war for clients and "heads" of investment bankers is at full blast.

    VTB, the second-large Russian bank, declares new strategy on the market of investment-banking services.

In summer, 2007 the president of the bank Andrey Kostin declared, that on the basis of subsidiary VTB Bank Europe, located in London, investment services will develop.
Kostin was going to spend some hundreds millions dollars for an investment direction and to compete with global investment banks like Goldman Sachs.

However, the market participants seriously began to doubt the potential of VTB. "It can become the largest player in the Russian sector, however, to turn inherently into really global investment bank VTB will need some decades", considers the deputy director general of IB Kit Finance Sergey Grechishkin.
Doubts were just: VTB has already kept down its appetite.

At the meeting of supervisory board it was said, that the bank nevertheless would concentrate efforts on work with Russian companies. Now VTB is engaged in taking the staff in Russia and Great Britain, which has an experience in leading investment banks. The task is not the easies one: as opposed to bank retailer that is much more business of technologies, investment-banking is a

business of figures. And there is the real war for them on the market.

   When in summer, 2007 the correspondent of one of the Russian newspapers phoned the analytical management of MDM-bank, he was answered word for word the following: "There is no one here, everyone left for JP Morgan". Really, in June, 2007 the head of analytical department Alex Kantarovich left the bank, having led away 5 his subordinates and the head of department of trade and sales on equity market Vladimir Brilya to JP Morgan that formed staff of investment bank.

Later the head of an investment direction Igor Smolkin also left the bank.

"Staff" transitions on investment banks market are not uncommon. So, for about half a year Alfa Bank was looking for the head of investment-banking subdivision instead of Marco Salvy, who left in July, 2006.

Ed Kaufman, who came to his place from UBS, brought with himself several people at once from the former place of work.

   Polled investment bankers with one voice say about total staff deficit and that the staff market in investment-banking sphere is seriously overheated. By estimations of experts, investment bankers of the same level of Ed Kaufman cost to the companies from $7 million a year.

It is almost twice more than they earn in the USA, as the agency Bloomberg reports, referring to calculations of the American personnel officers.

   The leaders of Russian investment-banking market are Deutsche Bank, Morgan Stanley, Credit Suisse, JP Morgan and Renaissance Capital. At the same time, according to the market participants, Renaissance Capital is actually the only Russian player perceived by western investment banks as the competitor. "We have a strong team that works in Moscow, but doesn't come from London as the need arises", explains the managing director of Renaissance Capital Ruben Aganbegyan.

"There are a lot of expatriates working in the company, it conducts projects not only in Russia, that's why it is perceived by Russian emitters more as the international bank", Sergey Grechishkin says.

   The advantage of Morgan Stanley is that it has entered the Russian market earlier than other western players.

Having put at the head of the Russian business Rair Simonyan, who perfectly understands Russian risks and has a fair amount of connections, Morgan Stanley managed to achieve leadership by means of organic growth. Its basic competitor Deutsche Bank went another way, having got 40 % of investment business of UFG Company in 2004, and in 2006 having exercised an option for purchase of the remained 60 % (it is interesting, that by then the company went up from $200 million to $700 million). It has cardinally improved the bank positions in Russia.

   Goldman Sachs also ventured for a company takeover that in 2005 looked closely at investment business of Aton in Russia. The parties carried on negotiations; however, they were not able to come to an agreement: stockholders failed to agree the transaction structure. As a result in 2007 investment subdivision was sold to Italian bank UniCredit for $424 million – twice as expensive, than earlier Goldman Sachs offered.
Russian market is assaulted by all new western players. In 2007 investment bank Lehman Brothers declared about its returning that had closed down its activity in Russia after crisis of 1998.

In April Nicolas Jordan was appointed as the head of an investment-banking direction, and, according to The Wall Street Journal, till the end of 2007 Lehman Brothers planned to take a team of 60 employees to the Russian subdivision. "Now on the Russian market almost all large global investment banks are presented, except Bear Stearns", Sergey Grechishkin confirms.

   "Global banks have a huge monetary resource which they can use for realization of financial needs of clients", the top-manager of the Russian representative office of one of the western investment banks explains difficulties of competition of Russian players with foreign grandees. These are many billions of dollars which they are able to give to Russian clients in the form of the syndicated credits, direct investments in the stock capital and more difficult forms of financing.

   Besides monetary resource the strength of foreign players is the name which at offering is at least the quality symbol for foreign investors.

However, Russian investment banks have an ace in the hole too. Not burdened with rigid western specifications, they can adjust to the needs of the client more quickly. "Russian and Western players on the market of investment-banking services do not always compete", as considers the chief executive of investment-banking management of Troika Dialog Andrey Burlinov. He says, as a rule, at average and large public offerings of stocks clients address simultaneously to both.

   The glade where the Russian investment companies will remain out of competition for a long time are small private offerings that foreign firms undertake reluctantly. The reasons are the same: now Russian business passes the period of transformation of non-transparent private companies into public ones, and the Russian adviser will sooner help the company to structure business and to whitewash, than the global investment company restricted by numerous international standards.