Russia's new revolution

The Independent

Tuesday, 1 July 2008

Bankers were thought to be facing tough times after the credit crunch. But in Moscow, where business is booming, Brits are being attracted by soaring salaries. By Jason Corcoran and Nick Clark

It has been a very good year to be Russian. The national football team sparkled at Euro 2008, it secured the unrivalled musical accolade of winning the Eurovision Song Contest, and while the markets around the world disintegrate, its own economy has continued to boom.

Soaring consumer spending, oil past $140 a barrel, record numbers of mergers and acquisitions (M&A) and a high growth rate means the financial focus is firmly on Russia in 2008.

Investment bankers in the West are charging to Moscow to cash in on the rise of lucrative takeover deals, as London and New York have increasingly become graveyards for the bulge-bracket institutions. "Foreign bankers are pouring into Mos-cow, that's where the action is," one capital markets professional said yesterday.

The Russian investment banks Renaissance Capital and Troika Dialog have doubled staff in the past 18 months, often looking abroad for expertise, at a time when Western bulge-bracket institutions have been forced to slash headcount in the wake of the credit crunch.

The latest big-name banker to make for Red Square is Nick Harwood, the former head of equities for Central and Eastern Europe, the Middle East and Africa at Citigroup. Mr Harwood will take up a post as deputy head of global markets at Troika Dialog, a Russian investment bank known for its close ties to the Kremlin, in mid-September.

Banks in Moscow are known to offer bankers packages that are well above market rates in the West, yet Mr Harwood, who has worked for Citigroup around the world, said remuneration had not influenced his decision to move. He said: "I am leaving a global market to work in a regional market, but the role will have a much wider remit than equities. Moscow is a very dynamic city and Russia now has the energy of a major economic superpower."

Chris Harvey, the global head of banking at Deloitte, said: "Bankers from the UK are increasingly targeting the emerging markets, especially Russia. The economy is modernising, and while it is not necessarily making headlines in the West, there is a lot of mergers and acquisitions and project finance activity. The country is moving further into the 21st century, and barring micro-economic shocks should continue to grow."

Andrew Keeley, head of financial institutions research at Troika, has spent six years in Moscow, and divides his time between the Russian capital and London. "Bankers moving into Moscow from the West can expect to double their incomes because a major skills shortage still exists here. It's a different culture and it's very dynamic and there are other benefits too," said the 35-year-old from Kent.

This year's battle for banking talent in Moscow has been ignited by the state-controlled bank VTB's move into investment banking. VTB, which raised $8bn in a listing on the London Stock Exchange last year, poached at least 60 bankers from Deut-sche Bank in Moscow to staff its new operation. The German bank responded by hiring scores from American and European rivals, such as Unicredit, UBS and ING. VTB's chief executive, Andrei Kostin, said in March that the group will invest $500m (£250m) and hire 400 people in the next two years to expand its nascent investment banking business.

A source close to VTB said: "Some guys under 30 have arrived without much experience. It's ridiculous. They have doubled their income to $2m a year overnight." The top rainmakers in Russia can command about $8m on two-year deals, according to Jonathan Astbury, a managing director at the headhunter Sandton Group, which works with Renaissance, Troika and Goldman Sachs. He said: "This is a slight premium compared to New York and London, but the main benefit is they are taxed at just 13 per cent across the board, so they are significantly better off in real terms. Certainly, in career terms, we feel the continued malaise in Western markets, notably UK and North America, is making many bankers contemplate Eastern Europe, Middle East and Asia as the main viable career options in the short term."

Some are even commuting, according to senior bankers. One said: "Some guys coming from the West find the transition pretty hard." He said the two overnight flights from London on Sunday nights were increasingly filled with bankers getting in to start work in Moscow on Monday morning. Some of those were on the return flight on Friday afternoons, he said.

One senior UK banker, who has worked in London, New York and Hong Kong, moved to Mos-cow in 2006. He said: "The acceleration of people moving occurred in 2005, and now it is fairly common, including those that commute from London."

It is approaching a decade since the 1998 financial crisis, when the rouble collapsed, the fledgling stock market crashed and the government defaulted on its bonds. The resulting meltdown sent many expats fleeing to Moscow's Sheremetyevo Airport, but the banks have returned, tentatively at first, but emboldened by a fast-growing middle class and a more stable economic and political climate.

Marcus Svedberg, chief economist at East Capital, an asset manager that focuses on Eastern Europe, said: "Ten years ago, the country was nearly bankrupt; now the economy is dynamic and, despite what is happening elsewhere, the growth has been accelerating this year."

As an illustration of some of the advances in the Russian economy, which is based on its oil and gas reserves, Mr Svedberg pointed out that GDP in Russia had risen from $271bn in 1998 to $1.6 trillion this year. At the same time, debt has fallen from 50 per cent of GDP to 3 per cent. Inflation is down from 84 per cent to 10 per cent, while the interest rate has fallen from 150 per cent to 11 per cent.

The country now has an oil fund that has so far invested only in AAA-rated bonds. It is believed that when the mandate is renewed in October, the fund will have a much more aggressive buying strategy.

The American banker Nick Jordan was lured by Lehman Brothers last year from Deutsche for a reputed $10m a year to run its Moscow office. Mr Jordan is based in London but spends three weeks a month in Moscow. He said: "Over the last 15 years banks have moved from being local bond hedge funds to being well-rounded wholesale, commercial and retail banks. It's adding another piece to the puzzle."

Russia's capital markets have been largely insulated from the global credit crunch. M&A has filled the vacuum left by the fall-off in IPOs.

Richard Hainsworth, the founder and general director of RusRating, the bank rating agency, has seen many expats come and go since arriving in Moscow in 1982. Mr Hainsworth's advice to new arrivals in Moscow? "Take a holiday in December, when it gets dark, to Egypt. It makes a big difference. Try to have a lot of patience and count to 10 before reacting."

'It was a culture shock, but I anticipate being here for some time' - Bernard Abdelmalak, Renaissance Capital

From his office on the 46th floor of Moscow City's Naberezhnaya Tower, the banker Bernard Abdelmalak could be forgiven for thinking he was working in Canary Wharf.

The Russian capital's emerging business district, two miles west of the Kremlin on the banks of the Moscow river, is styled on Canary Wharf, although much of the vast development is still a building site.

Mr Abdelmalak, who left his job at Citigroup in London, his home town, a year ago, works for the Russian emerging markets bank Renaissance Capital, which recently shifted most of its workforce to the Presensky district of Moscow.

"Moving here has been a culture shock, and I miss my family and friends, but there is plenty of upside, such as this view and working for a dynamic investment bank in such a fascinating and fast-paced city," he said.

Remuneration is a large part of the upside for bankers trading places from London to Moscow. Mr Abdelmalak, 31, has benefited from a generous increase in salary coupled with a reduced tax rate of 13 per cent.

Renaissance is among a handful of financial institutions, such as Lehman Brothers, Citibank, Standard Bank, KPMG and VTB, that have recently opened offices. Mr Abdelmalak lives in the centre of the city and misses the hubbub of working near the busy commercial thoroughfare of Tverskaya, the city's main artery into Red Square. He said: "There are no shops, no restaurants, no bars, just one Starbucks and two industrial-size canteens, but that's what Canary Wharf was once like."

His position as head of equity product control involves looking after the bank's trades in Africa, as well as its bonds and repos operations. He regularly travels to Kiev, Lagos and Nairobi. Soon that is likely to include Amaty in Kazakhstan.

He is routinely working till 9pm on Mondays and Tuesdays before client and colleague socialising begins mid-week. He takes Russian language lessons two or three times a week. "Life is very different to London. I am out of my comfort zone."

Mr Abdelmalak is taking a long term-view. "If the market here holds as well as it has so far in the global credit crisis, I anticipate being here for some time yet," he said.

Jason Corcoran