Monday, 11 August 2008

Deutsche Bank emerges as top fee earner in Russia

Dow Jones: Financial News

Jason Corcoran in Moscow

11 Aug 2008

Deutsche Bank has earned more from investment banking fees in Russia in the 10 years since the country defaulted on its domestic debt than any other bank, according to data provider Dealogic. The bank has earned $509m (€336m) for its involvement in mergers and acquisitions, debt and equity capital markets work in the 10 years to the end of last month.

This is substantially more than the $359m earned by second-placed Morgan Stanley, which was just ahead of UBS, JP Morgan and Renaissance Capital, the highest-placed Russian bank.

However, Deutsche Bank has started to lose market share to its competitors over the past five years. Over the five years to the end of July it accounted for 12% of fees in Russia. The total fell to 9.2% in the 12 months to the end of last month.

Raids on its staff have increased over the past year and the bank was almost knocked off its perch as Merrill Lynch, JP Morgan and Renaissance Capital closed the gap.

Western banks such as Goldman Sachs and Lehman Brothers have returned to Moscow. Domestic brokerages Renaissance Capital and Troika Dialog have also gained ground, emerging as strong players in equity capital markets and corporate deals. Russia’s UFC Metropol has earned its first appearance in the top 10 fee earners over the past 12 months.

Russia devalued the rouble by 34% and defaulted on its domestic debt in mid-August 1998, crippling the economy. Deutsche Bank’s Russian subsidiary was established in April that year, four months before the crash. Germany was renowned for providing financial assistance to Russia following the crisis.

Deutsche Bank did not scale back its activities despite the debt crisis. It took a lead role in the resolution of disputes between Russia and international creditors.

Joerg Bongartz, chairman of the board of Deutsche Bank Russia, said: “We are absolutely committed to this market and have been active in Russia for 125 years.” Deutsche Bank was also the top bank in Russia over the past decade by value of deals worked on, according to data provider Thomson Reuters.

It has worked on almost 100 advisory and debt and equity markets deals worth $91bn over the 10 years and eight months from the start of 1998 to August 6 this year, according to Thomson Reuters.

Bongartz, who was working in Moscow in 1998, said: “After the crash, we recapitalised the business and developed in the directions of fixed income, corporate finance and transaction banking. We reallocated our workforce rather than lay people off.”

Deutsche Bank’s position in Russia was cemented by its acquisition of local broker UFG in a two-step deal for $700m. The German bank acquired 40% of UFG in 2003 and the remainder in 2006.

The bank employs about 1,000 bankers in Moscow and provides local and
international clients with corporate finance and advisory, sales and
trading services, as well as wealth management and asset management

The defection of rainmaker Nick Jordan to Lehman Brothers and the
departure of UFG founder Ilya Sherbovich created trouble at the top.
This was exacerbated by raid on talent state run VTB, which has
recruited about 60 of Deutsche's bankers and analysts in the past 12

Bongartz said the pool of talent is deep and can point to the return
of Igor Lojevsky this month from Dresdner Kleinwort to takeover as
country head from Charlie Ryan.

American Ryan, the last remaining co-founder of UFG and Deutsche's key
figurehead in Russia, is stepping back as chief executive and country
head to take up the chairman's role.

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