Monday, 31 March 2008

Russians square up to western rivals

Financial News

Jason Corcoran in Moscow

31 March 2008

Renaissance and Troika are winning battles for talent and business

Russian investment banks have built up their strength and fought back against a year-long siege in Moscow by their western bulge-bracket rivals. A new investment banking hierarchy has emerged since Financial News last took a snapshot of the Russian market almost a year ago.

Local brokerages Renaissance Capital and Troika Dialog are going toe to toe with international heavyweights and are winning battles for talent and business in equity capital markets.

Ruben Aganbegyan, chief executive of Renaissance Capital Russia, said: “We have a long-established presence on the ground – we are strongly opposed to the ‘fly in, fly out’ investment banking model in all the markets where we operate. We believe our clients have the right to expect their bankers to be next to them all the time.”

Financial News last week disclosed Renaissance had hired William Donaldson, the former head of the US Securities and Exchange Commission, as a senior adviser to build links with Wall Street.

Domestic boutiques KIT Finance and Metropol Invest have emerged as top-four players in Russian M&A over the past year. Both banks earned their positions on the strength of utility sector transactions.

State-controlled bank VTB is setting up a full-service investment bank headquartered in London and last week hired Yuri Soloviev, deputy chairman of Deutsche Bank’s Russian arm, to run the business.

Russia’s leading lender Sberbank is looking at co-operating with Goldman Sachs in international capital markets and is considering a move into investment banking.

Deutsche Bank was last week hit by another departure from its Moscow business. Co-head of investment banking Dmitry Snesar left the bank to join a boutique founded by Ilya Sherbovich, whose resignation from the bank last year led to Snesar’s promotion.

However the German bank has yet to see a dent in its market-leading position, in spite of the departure of some of its top rainmakers over the past year.

Competition has increased remuneration. Bankers at managing director level can earn from $3m (€1.9m) to $5m, while juniors on sales and trading desk are pulling in an average of $1m.

Recruiters say Russian banks have been more successful at hiring and retaining talent lately because of their deeper pockets and the direct involvement of chairmen and chief executives in the hiring.

Jonathan Astbury, a managing director at headhunter Sandton Group, said: “Renaissance Capital and Troika offer strong cultures and are still in growth mode so they can often offer roles with a bigger remit and a chance to make an impact. Because on a per capita basis they perform well, they are able to compete with tier-one bulge brackets in terms of salary and bonuses.”

Russian initial public offerings raised a record $29.4bn last year, according to media research company PBN, half that due to Sberbank’s and VTB’s listings and some analysts believe the liquidity crisis will have a serious effect on equity issuance this year.

Russian corporate borrowing has slowed as a result of the credit crunch. Debt issuance rose to $48.7bn last year, from $43.2bn in 2006, but almost 90% of the year’s issuance took place in the first three quarters.

Dealmaking, particularly in the financial and consumer sectors, has filled the void, with 179 deals worth $22.7bn in the first two months of this year, according to data provider Dealogic.

Meanwhile with Moscow’s market close to saturation, banks are looking to Ukraine, Kazakhstan and other former Soviet states. Deutsche Bank, Morgan Stanley, Credit Suisse and UBS are all expanding in Ukraine’s capital Kiev.

Financial News profiles how some of the leading banks are faring. Rankings given are for the last 12 months, according to data from Thomson Financial, with the previous year’s rankings in brackets.


ECM: 10th (5th) DCM: 1st (10th) M&A: 15th (4th)
Rainmaker: Charles Lucas, head of central and eastern Europe and Middle East

The acquisition of ABN Amro by UK bank RBS led to the demise of its international equity capital markets joint venture with Rothschild. A company source said most of the venture’s staff in Moscow had taken positions at ABN Amro. RBS last week also revealed it was terminating another joint venture with Renaissance, which was providing currency, interest rate and credit derivatives to the Russian bank’s clients. It was adviser to last year’s $1bn initial public offering by LSR Group, a Saint Petersburg-based real estate company.


ECM: 3rd (13th) DCM: 2nd (4th) M&A: 9th (13th)
Rainmaker: Irackly Mtibelishvily, head of investment banking in Russia

Citigroup climbed the rankings in equity capital markets thanks to its advisory role in the initial public offering of state-run bank VTB and the listing of chemical producer Uralkali. A Moscow spokeswoman said Citigroup was building its business and had promoted Slava Slavinskiy to director of investment banking and hired Andre Lu as a senior banker.

Credit Suisse

Staff: 160. ECM: 14th (2nd) DCM: 9th (2nd) M&A: 11th (2nd)
Rainmaker: Steve Hellman, managing director, investment banking.

Credit Suisse has doubled its numbers in investment banking and equities over the past year in a push to gain market share. The bank this month acted as adviser to Russian steelmaker’s Evraz $4bn acquisition of pipe and plate business Ipsco Tubular. Charlie White-Thomson is relocating to Moscow to head the Russian equities franchise and Boris Reyzelman has been named head of sales and trading. A London spokeswoman said: “We now have a strong local equities sales force, as well as Moscow-based equity research analysts.”

•Deutsche Bank

Staff: 900. ECM: 1st (6th) DCM: 3rd (1st) M&A: 6th (1st)
Rainmakers: Andrew Chulack and Dmitry Snesar, co-heads of global banking in Russia

The German bank continues to lead the way in Moscow’s capital markets despite an exodus of senior bankers. Last week Dmitri Snesar, co-head of investment banking, left to join a boutique run by Ilya Sherbovich, whose resignation last year as head of Russian investment banking at Deutsche led to Snesar’s promotion. Deutsche has a culture of promoting within and has not been drawn into the war on talent. A lot of credit for the bank’s success is given to chief executive Charlie Ryan, whose contract expires later this year. In 2008, Deutsche won an advisory mandate on French carmaker Renault’s $1bn acquisition of a blocking stake in Russia’s AvotVaz.

•Dresdner Kleinwort

Staff: 150. ECM: 8th (4th) DCM: 8th (7th) M&A: – (5th)
Rainmaker: Igor Lojevsky, chairman of global banking and capital markets Russia

Dresdner Kleinwort is trying to re-establish its leading position in Russia’s capital market by hiring 60 bankers. A push is also being made in corporate broking and a new onshore private banking business is being set up in Moscow and Saint Petersburg.

The bank received a fillip last month after being named as adviser on three Russian mergers and acquisitions deals, including vodka maker Copecresto Enterprises’ sale of an 85% stake to drinks distributor CEDC, national electricity grid UES on the $392m sale of its 33% stake in its subsidiary TGK-2 and PepsiCo’s $1.4bn deal to acquire a 75% stake in juice maker Lebedyansky. The deals were too late to affect its league table ranking for this survey.

•Goldman Sachs

Staff: 100. ECM: 5th (16th) DCM: 11th (11th) M&A: 14th (11th)
Rainmaker: Sergei Stankovski, head of their Moscow financing business

Goldman Sachs is believed to be doing a lot of business in Russia in special opportunities, which are beneath the league tables’ radar. Its private equity arm is teaming with US private equity firm TPG to do deals and has made several investments. It advised and provided the financing for the UK private equity firm Lion Capital’s leveraged buyout of juice maker Nidan Soki.

•JP Morgan

Staff: about 100
ECM: 12th (1st) DCM: 5th (5th) M&A: 1st (15th)
Rainmaker: Natasha Tsukanova, head of Russian investment banking

The bank is building a brokerage from scratch after hiring a 15-strong team from MDM Bank last year. Jeffrey Costello, former head of UBS in Russia, re-emerged in February after nearly four years out of the industry as the first chief executive of the Russian business. Sir Roderic Lyne, former UK ambassador to Russia, joined as a senior adviser on public sector issues.

•Lehman Brothers

Staff: no comment
ECM: – (-) DCM: – (-) M&A: – (-)
Rainmaker: Nick Jordan, head of investment banking Russia

Lehman is continuing to expand its investment banking operations in Russia under Nick Jordan, who was hired last year from Deutsche Bank to build the business. Recent hires include head of capital markets for Russia Peter Ghavami, who was previously head of commodities at UBS. A spokeswoman in London said: “We are still in the building mode and it is no surprise that we are not featuring in the league tables.” The firm received a broker/dealer licence from the local regulator this year and will be occupying new office space in Moscow this year.

•Merrill Lynch

Staff: 70. ECM: – (12th) DCM: 13th (9th) M&A: 2nd (2nd)
Rainmaker: Bernie Sucher, head of global markets Russia

Merrill Lynch continues to fight with JP Morgan for Russia’s M&A crown. The bank is rumoured to be close to hiring a investment banking big hitter to lead the business. On a recent visit to Moscow, chief executive John Thain said the bank was going to expand rather than lay off employees in Russia. Merrill Lynch last year advised aluminium producer Norilsk Nickel on the sale of 25% plus one share stake for $15.7bn to rival Rusal.

•Morgan Stanley

Staff: 100. ECM: 4th (3rd) DCM: 4th (8th) M&A: 5th (7th)
Rainmaker: Elena Titova, co-head Russian investment banking

Morgan Stanley has been the most consistent performer in Russia of all the banks. It plans to open an office in Kiev and has hired Ihor Mitiukov, former Ukrainian Finance Minister and Ukrainian ambassador to the UK, to run it. The bank has managed the IPOs of several Ukrainian Government Eurobonds and provided loans to Ukrainian state companies.

•Renaissance Capital

Staff: 1,000. ECM: 2nd (5th) DCM: 20th (15th) M&A: 16th (17th)
Rainmaker: Ruben Aganbegyan, promoted in December to CEO for Russia from head of investment banking

Renaissance is trying to leverage its strong position at home to build a broader emerging markets business in sub-Saharan Africa, the Middle East and central Asia. It has expanded aggressively and has tapped Goldman Sachs to hire both Jeppe de Boer as head of real estate banking and Remi Olajoyegbe as global head of equity syndicate.

Recent departures include Daniel Broby, head of investments at its fund management unit, and Richard Bruens, head of strategy and investor relations. The bank managed a $1bn IPO by chemical company Uralkali in October and last month advised drinks distributor CEDC on the purchase of vodka maker Copecresto Enterprises.

•Troika Dialog

Staff: 900. ECM: 6th (8th) DCM: – (-) M&A: 10th (19th)
Rainmaker: Jacques Der Megreditchian, head of capital markets

Troika has almost doubled its staffing in Moscow over the past two years to 900. The privately owned bank, which rejected overtures from western suitors, is trying to catch up with Russian rival Renaissance. It has hired the Kremlin’s PR advisers Ketchum to improve its communications and spent money on a Moscow investor conference in January and an event at Davos, Switzerland.
The group recently acquired a fund manager in Kazakhstan and a bank in Armenia, the home country of its chief executive Ruben Vardanian. It acted as a financial adviser to Russian carmaker AvtoVaz in its sale of a blocking stake to France’s Renault in January.


Staff: 265. ECM: 7th (9th) DCM: 6th (6th) M&A: 7th (8th)
Rainmaker: Pavel Malyi, head of investment banking Russia

UBS has suffered several departures from its Moscow office over the past year in most of its key departments. Chief executive Ed Nicholson is retiring soon and will be replaced by Steven Meehan, a New York-based managing director in UBS’s global healthcare group and head of life sciences.
Nicholson’s deputy Marlen Manassov is also stepping back from the business. New head Meehan, who has a Russian wife, is keen to build the business and expand private banking operations in Russia and the CIS.


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