Tuesday, 22 April 2008

Lehman launches second campaign in Russia

Wall Street Journal - Financial News

Jason Corcoran in Moscow

21 April 2008

Bank’s two most senior executives in the country tell Financial News why they are building their Moscow team

Nick Jordan

This August will mark 10 years since Russia defaulted on $40bn (€25bn) of treasury debt. The anniversary will coincide with Lehman Brothers moving into its new Moscow office, a decade after the US investment bank and other bulge bracket firms lost billions in the resulting financial meltdown.

olitical stability and a boom in capital markets have brought the banks scrambling back, but some remain sensitive about the events of 1998.

Lehman was hit badly by the financial crash although it has never disclosed its losses. The bank is believed to have recovered only a fraction of its shortfall by freezing the UK-based assets of two Russian banks after contending Inkombank and Uneximbank had defaulted on obligations.
The European management, led by Jeremy Isaacs, had to work hard to convince New York-based chairman and chief executive Richard Fuld to re-enter the market. Lehman’s two most senior executives in Russia, Peter Ghavami and Nick Jordan, said the move to set up a full service investment bank in Moscow was preceded by a robust discussion at the bank.

Ghavami, head of capital markets in Russia, said: “Any company going into Russia would have a debate about capital allocation and that is healthy. I would not describe those debates as being between individuals. It’s a case of where do you want to put your capital and the decision was made very strongly to go to Russia.”

Ghavami, who joined last year from UBS where he was global head of commodities, added: “We have committed to building a strong local presence. We have received a broker-dealer licence, we are moving into permanent office space and we are building teams of people who will be based here permanently.”

Lehman underlined its intentions for the Russian market last year by hiring Jordan from his position as co-head of Russian investment banking for Deutsche Bank in London. Jordan, one of the best-regarded bankers in the country, is partnering Ghavami to build Lehman’s Russian business. He spent 10 years at Deutsche, where he worked on deals involving energy company Gazprom and other companies closely linked to the Kremlin.

Jordan, whose brother Boris founded Russia’s Renaissance Capital with Stephen Jennings, said Lehman’s opening in Moscow had been prompted by its clients.

He said: “You have to be there at the same time your clients want to be there. Our global institutional client base, both public and private, necessitated our move into Russia and the corporate sector with its strategic interest in Russia’s business sector.”

Ghavami and Jordan said Lehman’s expansion into Russia reflected the bank’s European and Asian growth and moves into commodities and foreign exchange.

The pair are confident Lehman has entered the Russian market at the right time despite a drought in equity issuance during the first quarter and a slackening in Russian corporate borrowing as a result of the credit crisis.

Healthy mergers and acquisitions dealflow has helped fill the void. Data provider Thomson Financial estimated Russian M&A volume at $14.2bn in the first quarter, only 4% lower than a year ago.

The bank, which received its broking and dealing licence from the Federal Financial Markets Service in January, will move into new offices at Naberezhnaya Tower II in Moscow City, the capital’s emerging business district three kilometres west of the Kremlin. Ghavami will move to Moscow from London. Jordan, who is based in London for family reasons, spends about three weeks a month in Moscow.

The pair said they had had no difficulties finding staff in spite of a battle for talent in Moscow. Many of Lehman’s international rivals, such as Merrill Lynch, Goldman Sachs and Credit Suisse, are expanding their operations in Russia.

Ghavami said: “We don’t believe the competitive landscape is something to be afraid of. It’s a healthy indication that there is a lot of value being in Russia.”

Jordan’s contract at Deutsche Bank prevented him from hiring former colleagues for a period. That arrangement has expired and he has brought in Stan Raskin as head of investment banking and Oksana Buto as a director.

Irina Volkova has joined from Merrill Lynch as chief administrative officer and Burat Karimov has been hired from local bank Uralsib Financial as a director.

Nikolai Varma is the most recent hire, joining as an executive director in Lehman’s financial institutions group from Credit Suisse. Lehman last year recruited a research team to cover Russian equities from Moscow. Viktor Shvets was hired as managing director from New York-based Moon Capital Management, where he led telecommunications research, to run a team of three analysts in Moscow.

Pavel Mamai, formerly at Renaissance Capital, joined as a credit analyst, and Vladimir Zhukov arrived from local lender Alfa Bank to cover metals and mining stocks.

Lehman intends to phase out its M&A advisory tie-up with Renaissance Capital because the two have become competitors rather than joint venture partners. Under the arrangement, Lehman and Renaissance have completed several deals in the natural resources sector. Sources close to the banks said they might co-operate in a new format.

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