Wall Street Journal and Financial News
By Jason Corcoran
15 December 2008
Fund managers have called the bottom too often
The investment horizon has experienced so many false dawns over the past 18 months that investors could be forgiven for regarding any rose-tinted outlook as a mirage.
Every time the stock market suffers another steep drop, fund managers and investment sages pronounce that the market bottom is in sight and now is the time to buy.
Fundamentals, technical signs and precedents may have backed up some of their theories but subsequent slumps in valuations have not borne out their views.
Ken Kinsey-Quick, head of multi-manager strategies at UK asset manager Thames River Capital, said: “The problem with predictions is that no one has a perfect crystal ball. Anyone making a prediction is taking a risk which gives them about a 30% chance of being right and looking like a superstar.”
Many potential superstars, however, have looked like chumps because their “unprecedented buying opportunities” have been so wide of the mark. Over the past year, asset managers have made the case for investing in financials, consumer cyclicals such as retailers, builders, media, industrials and Asian equities.
In the spring, several hedge funds and long-only investors jumped into banking debt believing it was cheap.
Funds such as Thames River Capital, Centaurus Capital and Union Bancaire Privée began buying leveraged loans and asset-backed securities that had been languishing on banks’ balance sheets since the credit crisis began in the summer of 2007. Kinsey-Quick said: “We bought into bank debt and got caught by the falling knife.
It looked cheap and the fundamentals were good but it’s even cheaper now because liquidity has dried up over the past three months since Lehman Brothers went bust. We lost about 4% on the investment this year. One advantage of experience is not to double down.”
London-based hedge fund Centaurus Capital started buying banking loans in April. A source close to the firm said it had not lost money on its investment until September when Lehman’s bankruptcy triggered a market meltdown.
The source said: “Everyone was thinking [in spring] that the worst was over when Bear Stearns nearly went under and that the banks would not be allowed to go under. I remember people saying you need to be long in debt financials but a succession of things happened after that you couldn’t legislate for.”
Centaurus, which had a restructuring plan for its flagship $1.2bn Alpha fund rejected last week, said credit was never more than 50% of its multi-strategy fund and usually between 20% and 30%.
Eric Debonnet, deputy chief investment officer at French fund of hedge funds HDF Finance, said he never believed the story about buying cheap debt. He said: “Our view then and now is that it’s too early because we still need many more bankruptcies before we reach distressed. The right time is when we are getting close to the highest default rate. S&P is forecasting 7% to 10% and today we are only at 1% to 2% depending on the country.”
Some asset managers have stressed that they have been investing in banks because of their long-term value. This was the reasoning expressed in June by Bill Gross, chief investment officer at Pimco, when he said he remained invested in the corporate debt of big investment banks, including Citigroup, Morgan Stanley and Goldman Sachs, holdings that have since fallen in value.
UK fund managers have been similarly burnt in the short term by the collapse of the banking industry. Listed manager Schroders held UK bank Lloyds TSB at the start of the year and bought into HBOS in the summer and more recently, Royal Bank of Scotland.
Nick Purves, Schroders UK value fund manager, said: “We accepted the outlook was bleak but the share prices were very low at the time. Banks are by their nature very risky but we feel they now have enough capital to survive and are worth investing in over the long term.”
Schroders believes the current valuations of UK banks and equities represent good long-term buys and it points to the dividend yield of stocks rising above the yield on 10-year bonds.
In the US, the dividend yield on the Standard & Poor’s 500-stock index is about the same as the yield on 10-year Treasury notes, about 3.5%, the first time such convergence has happened in about 50 years. In the UK, the FTSE 100 is trading on a price-earnings ratio of about 7.5 times, a figure that puts it in the lowest 20% of valuations for the FTSE since 1965.
Ian Lance, Schroders UK equity specialist manager, said capitalising on such valuations had historically generated returns of about 20%.
He said: “Over the past six months, the dividend yield on the highest yielding UK stocks has risen to its highest point in over 20 years – even if you exclude financials. The dividend yield on non-financial stocks now exceeds the yield on 10-year gilts.”
However, this correlation between equity and bond yields could be a false dawn as companies may be forced to slash dividends to conserve cash, making the sustainability of such payments impossible in a deep downturn.
Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, claimed stocks had reached a “selling climax” on July 15, which he believed would be seen as the bottom for the market.
In September, Goldman Sachs’ chief US portfolio strategist David Kostin called the bottom for equity markets and forecast a 12% upside on the S&P 500 by year-end.
Anthony Bolton, who managed the £2.4bn Fidelity Special Situations fund for 28 years, said in October he was buying shares for the first time in two years because some valuations were the cheapest he had seen in a lifetime.
Jeremy Grantham, founder of investment management firm GMO and a long-term bear, said in October that stocks were then more attractively priced than at any time since 1987. He said: “If we look at values like this and fail to buy them, we will subsequently not only look like fools, we will be fools.”
Investor Warren Buffett also said in October he had begun to buy stocks although with the caveat that he was not predicting that the worst of the sell-off was over.
A sustained upturn has yet to materialise. Robin Griffiths, technical strategist at Cazenove Capital Management, has pinpointed times and dates when investors should enter and leave the market.
In August, Griffiths said October 14 at 3.30pm was the right time to invest because indices would rise by between 25% and 30%.
Griffiths, who predicts market movements after studying historical graphs, trends and data, told Financial News last week that his basic story remained intact. He said: “Our timing schedules are generally quite good but we have had monstrous volatility which has ruined the trend.”
Griffiths said historic data for dividend yields and price earnings ratios showed that current bargains had been equalled only in October 1987, October 1974 and in 1930. He said: “We have to accept the conditions that produce these bargains are really scary, and we need to steel ourselves to copy Buffett, and be greedy when others are in fear.”
Griffiths predicts the market will rally following Barack Obama’s inauguration as US President on January 25, but will run out of steam by May.
Wednesday, 17 December 2008
Sunday, 14 December 2008
Deutsche Bank cuts 30% of Russia global markets staff
Dow Jones Newswires and Financial News
Jason Corcoran in Moscow
08 December 2008
Deutsche Bank is cutting 30% of staff from its global markets division in Moscow where it has been the biggest and most successful bulge bracket bank during Russia's capital markets boom.
Up to 30% of its Moscow-based global markets staff are expected to lose their jobs, double the proportion of employees being cut across Deutsche Bank's global markets business as part of a worldwide redundancy programme.
Bankers working in sales, trading and research in Moscow were made redundant last week with more layoffs expected this week, according to two sources inside the bank.
One said: "We have been told 30% has been earmarked across the board." The second said: "Ten of the research guys have gone."
A Deutsche Bank spokesman in Moscow said the job losses represented 2% of its 950 workforce but declined to comment on potential job losses in other areas of the business.
A statement from Deutsche Bank said: "As part of a global restructuring programme in global markets, Deutsche Bank is making investments in several areas for 2009, including commodities, FX and cash equities. Also as part of the programme and based upon projected client activity, it is making redundancies in exotic structured products, credit origination and proprietary trading."
Last week, Deutsche Bank began cutting 900 jobs across its global markets division, representing 15% of the business's staff.
Moscow-based sources at the bank said the job losses last week were confined to the global markets division, which does not encompass capital markets or mergers and acquisitions.
Deutsche Bank has led the way in Moscow's capital markets since it bought a stake in the investment banking boutique United Financial Group in 2004 for $700m. It employs about 950 staff in Moscow.
The bank has consistently been in the top three for Russian debt and equity underwriting and merger and acquisition advisory work and has earned more investment banking fees from the country than any other bank since it defaulted on its domestic debt a decade ago.
More than 1,000 bankers have been cut in recent months by domestically-owned banks Troika Dialog, Renaissance Capital, Alfa-Bank and Uralsib.
Overseas banks have so far been slower to slash after many quit the Russian market following the 1998 financial crisis. UBS said it planned to increase staff. However, Goldman Sachs is cutting its Moscow-based employees by 10%.
Jason Corcoran in Moscow
08 December 2008
Deutsche Bank is cutting 30% of staff from its global markets division in Moscow where it has been the biggest and most successful bulge bracket bank during Russia's capital markets boom.
Up to 30% of its Moscow-based global markets staff are expected to lose their jobs, double the proportion of employees being cut across Deutsche Bank's global markets business as part of a worldwide redundancy programme.
Bankers working in sales, trading and research in Moscow were made redundant last week with more layoffs expected this week, according to two sources inside the bank.
One said: "We have been told 30% has been earmarked across the board." The second said: "Ten of the research guys have gone."
A Deutsche Bank spokesman in Moscow said the job losses represented 2% of its 950 workforce but declined to comment on potential job losses in other areas of the business.
A statement from Deutsche Bank said: "As part of a global restructuring programme in global markets, Deutsche Bank is making investments in several areas for 2009, including commodities, FX and cash equities. Also as part of the programme and based upon projected client activity, it is making redundancies in exotic structured products, credit origination and proprietary trading."
Last week, Deutsche Bank began cutting 900 jobs across its global markets division, representing 15% of the business's staff.
Moscow-based sources at the bank said the job losses last week were confined to the global markets division, which does not encompass capital markets or mergers and acquisitions.
Deutsche Bank has led the way in Moscow's capital markets since it bought a stake in the investment banking boutique United Financial Group in 2004 for $700m. It employs about 950 staff in Moscow.
The bank has consistently been in the top three for Russian debt and equity underwriting and merger and acquisition advisory work and has earned more investment banking fees from the country than any other bank since it defaulted on its domestic debt a decade ago.
More than 1,000 bankers have been cut in recent months by domestically-owned banks Troika Dialog, Renaissance Capital, Alfa-Bank and Uralsib.
Overseas banks have so far been slower to slash after many quit the Russian market following the 1998 financial crisis. UBS said it planned to increase staff. However, Goldman Sachs is cutting its Moscow-based employees by 10%.
Crisis and competition drive down Russian custody fees
Financial News
Jason Corcoran in Moscow
08 December 2008
Increasing competition from new entrants and sharp falls in equity prices are driving down the margins of Russia’s sub-custody banks.
The recent arrivals of Sweden’s SEB and France’s Société Générale, plus the increasing participation of Russian banks such as VTB and Gazprombank, are forcing fees downward but bringing greater segmentation and opportunities for niche providers.
Natalia Sidorova, head of securities services at ING Wholesale Banking in Moscow, said: “Margins are decreasing, which is inevitable in a busy market like Russia driven by competition. Fees used to be about 20 basis points but have come down significantly in recent years.”
Serhiy Berezhny, head of trust and securities services at Deutsche Bank, agreed but said high fees could still be charged depending on the volume of client assets.
He said: “Different clients are charged differently depending on the level of assets under custody but overall margins have been decreased significantly over the past five years. A big client with $1bn (€800m) could be charged less than five basis points but we would still charge clients 20 basis points if they had assets of $200,000 as they couldn’t be charged at cost.”
With Russia’s main equity markets among the worst performers over the past two months – posting falls of more than 75% – custodians’ incomes generated from assets under custody have tumbled.
ING’s assets under custody fell from $155bn in August to $64bn last month but the Dutch bank’s custody operation remains Russia’s biggest player, serving more than 450 foreign and domestic clients.
Deutsche Bank, a top-three player along with ING and Citigroup, has seen its assets under custody decrease to $30bn from $100bn since the banking crisis in August. Other banks with custody operations in Russia include JSC Bank VTB; UniCredit; RZB and Sberbank.
Sidorova said: “We have seen a significant drop in our overall amount of assets under custody which has led to less safe-keeping fees as indices have gone down. But business is booming from new clients and the volume of transactions is high.”
Berezhny believes market entrants face a tough job to establish a network and contend with the financial crisis.
He said: “The arrival of new entrants this year has been the worst timing with the crisis occurring. It is very difficult to build a network and I don’t think some of them will establish a proper presence till next year.”
Société Générale hopes its capture this year of local bank Rosbank will make it a dominant player in domestic investor services, along with servicing in-bound and outbound assets.
The French bank paid $1.7bn for a 30% share of Rosbank, in addition to the 20% it already owns.
Ramy Bourgi, head of emerging markets development at Société Générale Securities Services, said the French bank would transfer assets to Rosbank once service standards had been met. Matthieu Moreau has been seconded from Société Générale Securities Services in South Africa to help with the transition.
Bourgi said: “We are marrying a strong local player, Rosbank, with a foreign and established player in SocGen.
“There is a good deal of competition and there will be some consolidation but there is also a good deal of segmentation in the market. We are very oriented towards the blue-chip clients in Russia and the international clients entering the country, whereas VTB and Gazprombank are very oriented towards the domestic client base.”
Sweden’s SEB launched custody services in August with a team of five in its St Petersburg office, offering international clients with Russian holdings custody, settlement, safe keeping and asset servicing.
Göran Fors, global head of custody services at SEB, said: “Initially, we are focusing on foreign broker-dealers and not the domestic client base. Russia is very important for our clients because historically the Nordic region has contributed 2% to 3% of overall investment in Russia. Being in Russia bolts it up with our network in the Nordics, the Baltics and Germany.”
Veronika Vasilieva is head of custody for UniCredit Group in Russia, which has a strong network of banks across Europe and is one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank – acquired by the Italian group’s Bank Austria Creditanstalt subsidiary in January 2007.
It also bought local broker Aton and has a large stake in Russian stock exchange Micex. Vasilieva said the market had fractured into large international providers offering full custodial services and those focusing on niche areas.
She said: “There is a good deal of competition and I expect some consolidation in the industry. The market has developed towards different segments.”
ING and Deutsche Bank are the two biggest custodians for Russian depositary programmes, with JP Morgan and Citigroup also serious participants.
The two market leaders acknowledged the inroads being made by Russia’s big domestic banks such as VTB and Gazprombank as they expand their offerings and diversify.
VTB Bank last month said it had received custodian status for Russian companies under a Bank of New York Mellon global depositary receipt programme while Gazprombank – which like VTB is building an investment banking team – plans to expand its American Depositary Receipt programmes.
However, Gazprombank vice-president and depositary centre head Vladimir Tatsy told news service Interfax that the launch had been delayed by the financial crisis.
Berezhny of Deutsche Bank said: “VTB and Sberbank have definitely managed to break into the realm of depositary receipts and their share of the market will grow but they can’t compete for standard custodial accounts because of their staff’s limited ability in English, a lack of a global relationship management and a lack of a global network.”
Jason Corcoran in Moscow
08 December 2008
Increasing competition from new entrants and sharp falls in equity prices are driving down the margins of Russia’s sub-custody banks.
The recent arrivals of Sweden’s SEB and France’s Société Générale, plus the increasing participation of Russian banks such as VTB and Gazprombank, are forcing fees downward but bringing greater segmentation and opportunities for niche providers.
Natalia Sidorova, head of securities services at ING Wholesale Banking in Moscow, said: “Margins are decreasing, which is inevitable in a busy market like Russia driven by competition. Fees used to be about 20 basis points but have come down significantly in recent years.”
Serhiy Berezhny, head of trust and securities services at Deutsche Bank, agreed but said high fees could still be charged depending on the volume of client assets.
He said: “Different clients are charged differently depending on the level of assets under custody but overall margins have been decreased significantly over the past five years. A big client with $1bn (€800m) could be charged less than five basis points but we would still charge clients 20 basis points if they had assets of $200,000 as they couldn’t be charged at cost.”
With Russia’s main equity markets among the worst performers over the past two months – posting falls of more than 75% – custodians’ incomes generated from assets under custody have tumbled.
ING’s assets under custody fell from $155bn in August to $64bn last month but the Dutch bank’s custody operation remains Russia’s biggest player, serving more than 450 foreign and domestic clients.
Deutsche Bank, a top-three player along with ING and Citigroup, has seen its assets under custody decrease to $30bn from $100bn since the banking crisis in August. Other banks with custody operations in Russia include JSC Bank VTB; UniCredit; RZB and Sberbank.
Sidorova said: “We have seen a significant drop in our overall amount of assets under custody which has led to less safe-keeping fees as indices have gone down. But business is booming from new clients and the volume of transactions is high.”
Berezhny believes market entrants face a tough job to establish a network and contend with the financial crisis.
He said: “The arrival of new entrants this year has been the worst timing with the crisis occurring. It is very difficult to build a network and I don’t think some of them will establish a proper presence till next year.”
Société Générale hopes its capture this year of local bank Rosbank will make it a dominant player in domestic investor services, along with servicing in-bound and outbound assets.
The French bank paid $1.7bn for a 30% share of Rosbank, in addition to the 20% it already owns.
Ramy Bourgi, head of emerging markets development at Société Générale Securities Services, said the French bank would transfer assets to Rosbank once service standards had been met. Matthieu Moreau has been seconded from Société Générale Securities Services in South Africa to help with the transition.
Bourgi said: “We are marrying a strong local player, Rosbank, with a foreign and established player in SocGen.
“There is a good deal of competition and there will be some consolidation but there is also a good deal of segmentation in the market. We are very oriented towards the blue-chip clients in Russia and the international clients entering the country, whereas VTB and Gazprombank are very oriented towards the domestic client base.”
Sweden’s SEB launched custody services in August with a team of five in its St Petersburg office, offering international clients with Russian holdings custody, settlement, safe keeping and asset servicing.
Göran Fors, global head of custody services at SEB, said: “Initially, we are focusing on foreign broker-dealers and not the domestic client base. Russia is very important for our clients because historically the Nordic region has contributed 2% to 3% of overall investment in Russia. Being in Russia bolts it up with our network in the Nordics, the Baltics and Germany.”
Veronika Vasilieva is head of custody for UniCredit Group in Russia, which has a strong network of banks across Europe and is one of the leading sub-custodians in the Russian market through its ownership of International Moscow Bank – acquired by the Italian group’s Bank Austria Creditanstalt subsidiary in January 2007.
It also bought local broker Aton and has a large stake in Russian stock exchange Micex. Vasilieva said the market had fractured into large international providers offering full custodial services and those focusing on niche areas.
She said: “There is a good deal of competition and I expect some consolidation in the industry. The market has developed towards different segments.”
ING and Deutsche Bank are the two biggest custodians for Russian depositary programmes, with JP Morgan and Citigroup also serious participants.
The two market leaders acknowledged the inroads being made by Russia’s big domestic banks such as VTB and Gazprombank as they expand their offerings and diversify.
VTB Bank last month said it had received custodian status for Russian companies under a Bank of New York Mellon global depositary receipt programme while Gazprombank – which like VTB is building an investment banking team – plans to expand its American Depositary Receipt programmes.
However, Gazprombank vice-president and depositary centre head Vladimir Tatsy told news service Interfax that the launch had been delayed by the financial crisis.
Berezhny of Deutsche Bank said: “VTB and Sberbank have definitely managed to break into the realm of depositary receipts and their share of the market will grow but they can’t compete for standard custodial accounts because of their staff’s limited ability in English, a lack of a global relationship management and a lack of a global network.”
Saturday, 29 November 2008
Russians lose confidence in faltering rouble
Financial News
By Jason Corcoran
24 November 2008
Letter from Moscow
Gambling in casinos has been a popular pastime in Moscow since the fall of communism but a more recent fad is desperate speculation on the currency markets. A slide in the value of the rouble and a deposit run at banks that is gathering momentum has loaded the dice in favour of a punt on the dollar.
The on-off love affair with the greenback dates back to 1998 when a rouble devaluation wiped out people’s savings. Those lucky enough to have withdrawn their money in time transferred funds into dollars.
Popular as Russia’s leaders are, its citizens have learnt not to take any chances by keeping faith with the rouble. Russians are rushing to protect their wealth in global currencies, having seen the stock market plunge by 70%, inflation hovering at 15% and all manner of businesses struggling to make basic payments.
Viewers tuning into national television on November 12 may well have been baffled by a
15-second clip announcing the Government’s widening of the rouble’s trading band by 30 kopeks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia’s state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street’s woes. President Dmitry Medvedev has gone as far as urging law enforcement agencies to prosecute anyone spreading malicious rumours that could cause the banks to collapse.
Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and real estate contaminate the real economy. Business professionals reading the financial press are better informed, while ordinary people check currency exchanges for the latest rates.
The state is determined to hold the currency stable and the central bank spent $57.5bn in the currency market to shore up the rouble in September and October. However, the rouble has lost 17% of its value over the past two and a half months despite the interventions. Last Thursday, street kiosks were selling dollars at more than 28 roubles apiece, compared with a low of 23 roubles in mid-July.
The faltering rouble is triggering a deposit run, with reports suggesting a deposit loss of 15% in large retail banks such as Alfa Bank, Austria’s Raiffeisen and Italy’s UniCredit.
Smaller banks are even more vulnerable. Authorities last week pledged to protect only national banks with over $4bn in retail deposits or regional institutions with more than $1bn in savers’ deposits.
While the Russian central bank’s move to increase the rouble’s trading band was intended to absorb some of the pressure on the currency, it had the effect of devaluing it by 1% and the stock market responded negatively. The fear is that if the central bank falters in its defence of the rouble, there could be a full-scale run on the banks and the currency.
The oil price is critical for the rouble. Economists believe the only way pressure for a full devaluation will ease is if the price of oil moves much higher than $60 per barrel.
Prime Minister Vladimir Putin and his presidential successor Medvedev remain popular while the Russian population remains apathetic to any alternatives. In an apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles – and in the bank. But further currency fluctuations, along with spiralling inflation and jobs losses may yet bring out protesting pensioners if their mattress money again proves to be good only for kindling fires on harsh winter days.
http://www.efinancialnews.com/archive/keyword/jason+corcoran/1/content/3352565176
By Jason Corcoran
24 November 2008
Letter from Moscow
Gambling in casinos has been a popular pastime in Moscow since the fall of communism but a more recent fad is desperate speculation on the currency markets. A slide in the value of the rouble and a deposit run at banks that is gathering momentum has loaded the dice in favour of a punt on the dollar.
The on-off love affair with the greenback dates back to 1998 when a rouble devaluation wiped out people’s savings. Those lucky enough to have withdrawn their money in time transferred funds into dollars.
Popular as Russia’s leaders are, its citizens have learnt not to take any chances by keeping faith with the rouble. Russians are rushing to protect their wealth in global currencies, having seen the stock market plunge by 70%, inflation hovering at 15% and all manner of businesses struggling to make basic payments.
Viewers tuning into national television on November 12 may well have been baffled by a
15-second clip announcing the Government’s widening of the rouble’s trading band by 30 kopeks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia’s state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street’s woes. President Dmitry Medvedev has gone as far as urging law enforcement agencies to prosecute anyone spreading malicious rumours that could cause the banks to collapse.
Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and real estate contaminate the real economy. Business professionals reading the financial press are better informed, while ordinary people check currency exchanges for the latest rates.
The state is determined to hold the currency stable and the central bank spent $57.5bn in the currency market to shore up the rouble in September and October. However, the rouble has lost 17% of its value over the past two and a half months despite the interventions. Last Thursday, street kiosks were selling dollars at more than 28 roubles apiece, compared with a low of 23 roubles in mid-July.
The faltering rouble is triggering a deposit run, with reports suggesting a deposit loss of 15% in large retail banks such as Alfa Bank, Austria’s Raiffeisen and Italy’s UniCredit.
Smaller banks are even more vulnerable. Authorities last week pledged to protect only national banks with over $4bn in retail deposits or regional institutions with more than $1bn in savers’ deposits.
While the Russian central bank’s move to increase the rouble’s trading band was intended to absorb some of the pressure on the currency, it had the effect of devaluing it by 1% and the stock market responded negatively. The fear is that if the central bank falters in its defence of the rouble, there could be a full-scale run on the banks and the currency.
The oil price is critical for the rouble. Economists believe the only way pressure for a full devaluation will ease is if the price of oil moves much higher than $60 per barrel.
Prime Minister Vladimir Putin and his presidential successor Medvedev remain popular while the Russian population remains apathetic to any alternatives. In an apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles – and in the bank. But further currency fluctuations, along with spiralling inflation and jobs losses may yet bring out protesting pensioners if their mattress money again proves to be good only for kindling fires on harsh winter days.
http://www.efinancialnews.com/archive/keyword/jason+corcoran/1/content/3352565176
East Capital reveals staff cuts
Financial News
Jason Corcoran in Moscow
28 November 2008
Swedish fund manager East Capital has cut its personnel by a fifth following a 70% slide in its core equity market of Russia over the past two months.
The 40 jobs cuts from East Capital's overall headcount of 225 indicate how the financial crisis in Russia is spreading from investment banks to the buyside.
The Stockholm-based manager said 20 jobs in Sweden would be affected and the remainder in its international offices in Moscow and elsewhere in the CIS.
A statement from East Capital said: "Like many others in these turbulent times, we are carrying out an organisational review…We need to adapt to the new reality."
Hedge funds operating throughout Russia and the CIS are cutting their headcounts and slashing costs following sharp falls in equity prices and increases in clients redeeming their accounts.
Prosperity Capital, previously the leading Russian fund manager, has seen its assets under management shrink to $1.5bn (€1.1bn) from over $5bn over the past few months. It's $1.2bn Russia equity fund has fallen to $400m due to the drop in equity values.
Prosperity's chief executive Mattias Westmann told Financial News that Prosperity had posted some inflows from new clients and little in the way of redemptions.
He said: "We have not closed any funds but we are trying to cut costs in general. No personnel has been affected so far as we have always been a pretty low cost operation."
Prosperity, which was established in 1996, employs just 25 people in Moscow and London.
The closure last month of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.
The closure in October of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London
Another Russian hedge fund, Denholm Hall Russian Arbitage Fund, announced it was considering a restructuring following difficulties. In a letter to investors, Denholm said it was conducting a review of "of the collateral of our loans, the liquidity of our borrowers, the health of the underlying businesses and our hedging strategy".
Meanwhile Da Vinci Capital, which conducted an initial public offering on London's junior Aim market in May, has launched a crisis opportunities fund.
Da Vinci's long-short hedge fund has suffered from redemptions and has fallen to just $15m and it's managers are considering winding it up.
Jason Corcoran in Moscow
28 November 2008
Swedish fund manager East Capital has cut its personnel by a fifth following a 70% slide in its core equity market of Russia over the past two months.
The 40 jobs cuts from East Capital's overall headcount of 225 indicate how the financial crisis in Russia is spreading from investment banks to the buyside.
The Stockholm-based manager said 20 jobs in Sweden would be affected and the remainder in its international offices in Moscow and elsewhere in the CIS.
A statement from East Capital said: "Like many others in these turbulent times, we are carrying out an organisational review…We need to adapt to the new reality."
Hedge funds operating throughout Russia and the CIS are cutting their headcounts and slashing costs following sharp falls in equity prices and increases in clients redeeming their accounts.
Prosperity Capital, previously the leading Russian fund manager, has seen its assets under management shrink to $1.5bn (€1.1bn) from over $5bn over the past few months. It's $1.2bn Russia equity fund has fallen to $400m due to the drop in equity values.
Prosperity's chief executive Mattias Westmann told Financial News that Prosperity had posted some inflows from new clients and little in the way of redemptions.
He said: "We have not closed any funds but we are trying to cut costs in general. No personnel has been affected so far as we have always been a pretty low cost operation."
Prosperity, which was established in 1996, employs just 25 people in Moscow and London.
The closure last month of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.
The closure in October of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London
Another Russian hedge fund, Denholm Hall Russian Arbitage Fund, announced it was considering a restructuring following difficulties. In a letter to investors, Denholm said it was conducting a review of "of the collateral of our loans, the liquidity of our borrowers, the health of the underlying businesses and our hedging strategy".
Meanwhile Da Vinci Capital, which conducted an initial public offering on London's junior Aim market in May, has launched a crisis opportunities fund.
Da Vinci's long-short hedge fund has suffered from redemptions and has fallen to just $15m and it's managers are considering winding it up.
Friday, 21 November 2008
Rouble trouble
The Guardian - Comment is Free
A slide in the value of Russian currency has led many to cash out their modest savings and punt for either dollar or euro
By Jason Corcoran
guardian.co.uk, Wednesday November 19 2008 20.00
The financial crisis is quickly transforming Russia into a nation of desperate currency speculators due to a slide in the rouble's value and a deposit run gathering pace at the banks.
For many ordinary Russians, it's a game of roulette as they cash out their modest savings and punt for either dollar or euro.
The cards are stacked in favour of a dollar bet as Russians have a love affair with the greenback dating back to last financial crisis in 1998, when a rouble devaluation wiped out their savings.
Pensioners tuning into national TV last week may well have been baffled by a 15-second clip announcing the government widening the rouble's trading corridor by 30 kopecks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia's state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street's woes. Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and the real estate sector contaminate the real economy.
Business professionals who read the financial press will be well-informed while ordinary people are turning to currency kiosks and their chalkboards showing the latest currency rates.
The world's second-largest oil exporter has accumulated reserves of nearly $600bn during an oil and gas boom, but those reserves have fallen by a fifth to $475bn in the last three months largely due to efforts to prop up the rouble.
The Kremlin has spent tens of billions defending the rouble from falling oil and stock prices and capital flight of $150bn since early August.
The state is determined to hold the currency stable is because of the risk that a weak rouble will lead to a loss of confidence by Russian savers in the currency, in the banking system and in the government.
Over the past two-and-a-half months, the rouble has lost over 15% of its value, despite the interventions.
On Tuesday, street exchanges were selling dollars at less than 28 roubles, compared to a 23-rouble high in mid-July.
The faltering rouble is triggering a deposit run with reports suggesting a deposit loss of 25% in large retail banks and 3% in the state banks.
The Russian prime minister, Vladimir Putin, and his presidential successor Dmitry Medvedev remain popular leaders while the Russian population remains hugely apathetic to any liberal, communist or extremist alternatives.
In apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles — and in the bank. "I have kept all my accounts at the bank. I have not taken the money out, not changed roubles into dollars and not bought any shares," Medvedev told the Argumenty i Fakty newspaper.
But further currency fluctuations, along with jobs losses and rising inflation may yet bring out protesting babushkas if their mattress money again proves to be good only for fire tinder.
comments (32)
http://www.guardian.co.uk/commentisfree/2008/nov/19/russia-economics
A slide in the value of Russian currency has led many to cash out their modest savings and punt for either dollar or euro
By Jason Corcoran
guardian.co.uk, Wednesday November 19 2008 20.00
The financial crisis is quickly transforming Russia into a nation of desperate currency speculators due to a slide in the rouble's value and a deposit run gathering pace at the banks.
For many ordinary Russians, it's a game of roulette as they cash out their modest savings and punt for either dollar or euro.
The cards are stacked in favour of a dollar bet as Russians have a love affair with the greenback dating back to last financial crisis in 1998, when a rouble devaluation wiped out their savings.
Pensioners tuning into national TV last week may well have been baffled by a 15-second clip announcing the government widening the rouble's trading corridor by 30 kopecks, in a move seen by analysts as a tacit admission of a gradual devaluation.
Russia's state-run channels have largely ignored the domestic economic crisis by focusing on Wall Street's woes. Worsening financial conditions, though, are beginning to eclipse an eight-year commodity boom as problems in financial services and the real estate sector contaminate the real economy.
Business professionals who read the financial press will be well-informed while ordinary people are turning to currency kiosks and their chalkboards showing the latest currency rates.
The world's second-largest oil exporter has accumulated reserves of nearly $600bn during an oil and gas boom, but those reserves have fallen by a fifth to $475bn in the last three months largely due to efforts to prop up the rouble.
The Kremlin has spent tens of billions defending the rouble from falling oil and stock prices and capital flight of $150bn since early August.
The state is determined to hold the currency stable is because of the risk that a weak rouble will lead to a loss of confidence by Russian savers in the currency, in the banking system and in the government.
Over the past two-and-a-half months, the rouble has lost over 15% of its value, despite the interventions.
On Tuesday, street exchanges were selling dollars at less than 28 roubles, compared to a 23-rouble high in mid-July.
The faltering rouble is triggering a deposit run with reports suggesting a deposit loss of 25% in large retail banks and 3% in the state banks.
The Russian prime minister, Vladimir Putin, and his presidential successor Dmitry Medvedev remain popular leaders while the Russian population remains hugely apathetic to any liberal, communist or extremist alternatives.
In apparent appeal for calm, Medvedev and Putin said recently they would keep their savings in roubles — and in the bank. "I have kept all my accounts at the bank. I have not taken the money out, not changed roubles into dollars and not bought any shares," Medvedev told the Argumenty i Fakty newspaper.
But further currency fluctuations, along with jobs losses and rising inflation may yet bring out protesting babushkas if their mattress money again proves to be good only for fire tinder.
comments (32)
http://www.guardian.co.uk/commentisfree/2008/nov/19/russia-economics
Monday, 17 November 2008
Russian Banks Face Winter Freeze
Dow Jones International News
By Financial News reporters
17 November 2008
Just a year after they were engaged in a frantic war for the best talent, investment banks in Russia have started slashing hundreds of jobs and cutting pay.
Lay-offs at two of the country's largest domestic investment banks - Troika Dialog and Renaissance Capital - are approaching 1,000, and cuts will end up being substantially deeper than had previously been declared, according to bankers in Moscow.
Troika Dialog has begun cuts expected to total 500, or 35% of its overall staff, according to two bankers at the company. The bank was unavailable for comment. Renaissance Capital will cut 25% of its employees, according to an internal memo sent to staff, which represents about 375 of their overall staff of 1,500. However, bankers there said the figure will be higher.
A Rencap spokesman said nothing had been decided.
Elsewhere, there have also been 20 redundancies at mid-tier broker Trust Bank, according to a banker inside the company. VTB Bank is also cutting staff. Meanwhile, Ed Kaufmann, head of investment banking at Alfa-Bank, said the company was "trimming overall headcount" but is still hiring selectively.
Pay cuts are also in the pipeline. At Troika, those earning more than $3,000 (EUR2,357) a month have been told their pay will be slashed by 25%, according to one banker. Banking group Uralsib's staff have been told their salaries will be cut by 20%, while employees at broker Metropol earning more than $10,000 per month have been told their salaries will also be cut by 20%, according to staff at both companies.
Overseas banks that have piled into the market in the past year appear more resilient however. Merrill Lynch said it was not cutting staff in Moscow and UBS said it plans to increase staff.
www.efinancialnews.com
By Financial News reporters
17 November 2008
Just a year after they were engaged in a frantic war for the best talent, investment banks in Russia have started slashing hundreds of jobs and cutting pay.
Lay-offs at two of the country's largest domestic investment banks - Troika Dialog and Renaissance Capital - are approaching 1,000, and cuts will end up being substantially deeper than had previously been declared, according to bankers in Moscow.
Troika Dialog has begun cuts expected to total 500, or 35% of its overall staff, according to two bankers at the company. The bank was unavailable for comment. Renaissance Capital will cut 25% of its employees, according to an internal memo sent to staff, which represents about 375 of their overall staff of 1,500. However, bankers there said the figure will be higher.
A Rencap spokesman said nothing had been decided.
Elsewhere, there have also been 20 redundancies at mid-tier broker Trust Bank, according to a banker inside the company. VTB Bank is also cutting staff. Meanwhile, Ed Kaufmann, head of investment banking at Alfa-Bank, said the company was "trimming overall headcount" but is still hiring selectively.
Pay cuts are also in the pipeline. At Troika, those earning more than $3,000 (EUR2,357) a month have been told their pay will be slashed by 25%, according to one banker. Banking group Uralsib's staff have been told their salaries will be cut by 20%, while employees at broker Metropol earning more than $10,000 per month have been told their salaries will also be cut by 20%, according to staff at both companies.
Overseas banks that have piled into the market in the past year appear more resilient however. Merrill Lynch said it was not cutting staff in Moscow and UBS said it plans to increase staff.
www.efinancialnews.com
Russia braced for a bleak winter
Financial News
Jason Corcoran in Moscow and Harry Wilson
17 Nov 2008
Moscow-based investment bankers are at the sharp end of job cuts
Russian index slumps
It seems like a different age, but it was only recently that Moscow-based investment bankers had firms fighting to secure their services and could command pay packages commensurate with demand.
Senior Moscow-based bankers and those covering the Russian markets asked for and got lucrative pay deals as local brokers and large international investment banks fought a hiring war to build their businesses in the country.
Guaranteed packages in excess of $10m (€7.8m) were not unheard of and even junior staff with experience of the Russian markets received $1m guarantees to join rivals.
In early 2007, Russian investment bank Alfa-Bank recruited the head of UBS’ Moscow office Ed Kaufman for a reputed $20m over two years.
Speaking to Financial News at the time of his hiring by Alfa, Kaufman described his package as “very generous”, while declining to comment on the specifics.
US investment banks including Lehman Brothers spent similar sums to secure top bankers from rivals to give them the entrance they desperately wanted into Russia’s booming natural resources-fuelled economy.
However, after two and a half months in which the Russian stock market has lost 70% of its value and with the oil price at a three-year low, the days of the multi-million dollar guaranteed package are history and the hiring boom has turned on its head as the axe begins to fall on bloated and expensive banking teams.
Last week, Russia’s largest independent investment bank, Troika Dialog, began culling 20% of its workforce with the loss of about 300 jobs. However, the cut could be more severe and as many as 500 jobs are potentially at risk, equal to 35% of its staff.
Troika’s redundancies followed similar cuts at main Moscow-based rival Renaissance Capital, which after accepting a $500m investment from Russian billionaire Mikhail Prokhorov was forced to make hundreds of employees redundant as it cut a quarter of its staff.
Renaissance Capital had become known within the international banking community for its lucrative pay packets, which included large grants of stock and generous guarantees.
In 2007, Renaissance Capital’s total staff compensation bill came to $370m, equating to an average payout of more than $300,000 for each of the firm’s 1,145 employees.
Until recently, Renaissance Capital was deluged with CVs from staff at investment banks looking to escape job cuts in their own firms and join the seemingly invulnerable Russian boom.
Weeks before it was forced to accept Prokhorov’s money, Renaissance Capital hired John Porter, Morgan Stanley’s head of Middle Eastern and African equity capital markets, to lead its growth in the region.
Speaking to Financial News in the wake of Prokhorov’s investment, Renaissance Capital’s co-head of investment banking Andrew Cornthwaite said: “We have always taken the view that if you are involved in these markets you have to accept that some things will go badly wrong from time to time. We are comfortable with that.”
The hiring freeze has hit institutions thought to be relatively immune, such as state-owned bank VTB, which had spent hundreds of millions of dollars in the past 18 months building its investment banking business.
In a statement, VTB said it had frozen recruitment and would focus on risk management, setting up a unit to cope with the fallout from the financial crisis.
However, for staff made redundant by Russian investment banks the terms are still generous. Troika employees who lose their jobs will receive between five and eight months’ salary, which in many cases will not be far off the length of time employees had worked for the firm.
International banks are starting to scale back the size of their Russian operations too, just over 10 years after many of the same banks shut up shop in Moscow in the wake of the Russian Government’s default.
A Russian investment banker said: “It is different to 1998. Then, the pull back was focused on Russia; this time it is part of global retrenchment by banks to what they consider their core businesses.”
Rivals say Goldman Sachs is scaling back its staff in Moscow, though a source at the bank said it was currently “assessing market conditions, while the jobs of former ABN Amro employees are likely to be vulnerable in the wake of RBS’ announcement last week that it would make 3,000 redundant in its global banking and markets business.
This is a change from 11 months ago, when bankers such as Merrill Lynch chairman and chief executive John Thain flew into Moscow amid fanfare in the local and international media to meet then President Putin and open the bank’s Moscow office.
One banker at a Russian bank said: “Everyone has been hiring like mad for the last couple of years, but the party is well and truly over now.”
Merrill Lynch insisted it is not cutting staff in Moscow despite widespread rumours it is preparing to dismiss staff and even close the office. One source close to the bank said it was preparing to expand the operation. Despite the sombre mood in the Russian market, fee levels are not far down on 2007 and are substantially up on previous years.
Russian investment banking revenues for the year so far stand at $1.53bn, according to investment banking data provider Dealogic, down 13% on the same point last year, but up more than 50% on the same point in 2006, when fees hit a then record of $1.14bn.
Steve Meehan, head of UBS in Russia, said: “The number of competitors in this market will be reduced dramatically. For the long term, this correction will be positive for banks like us.”
The long-term prognosis for Russia is positive and, despite the fall in oil prices, most admit this is only a temporary blip. One Russian banker said: “The long-term trend has got to be for higher energy prices and Russia will obviously benefit from this. What you’re seeing now is the bursting of a bubble, not the end of Russia.”
Meehan said: “Russia is the only country that has got a top-10 position in all the mineral resources that matter."
Jason Corcoran in Moscow and Harry Wilson
17 Nov 2008
Moscow-based investment bankers are at the sharp end of job cuts
Russian index slumps
It seems like a different age, but it was only recently that Moscow-based investment bankers had firms fighting to secure their services and could command pay packages commensurate with demand.
Senior Moscow-based bankers and those covering the Russian markets asked for and got lucrative pay deals as local brokers and large international investment banks fought a hiring war to build their businesses in the country.
Guaranteed packages in excess of $10m (€7.8m) were not unheard of and even junior staff with experience of the Russian markets received $1m guarantees to join rivals.
In early 2007, Russian investment bank Alfa-Bank recruited the head of UBS’ Moscow office Ed Kaufman for a reputed $20m over two years.
Speaking to Financial News at the time of his hiring by Alfa, Kaufman described his package as “very generous”, while declining to comment on the specifics.
US investment banks including Lehman Brothers spent similar sums to secure top bankers from rivals to give them the entrance they desperately wanted into Russia’s booming natural resources-fuelled economy.
However, after two and a half months in which the Russian stock market has lost 70% of its value and with the oil price at a three-year low, the days of the multi-million dollar guaranteed package are history and the hiring boom has turned on its head as the axe begins to fall on bloated and expensive banking teams.
Last week, Russia’s largest independent investment bank, Troika Dialog, began culling 20% of its workforce with the loss of about 300 jobs. However, the cut could be more severe and as many as 500 jobs are potentially at risk, equal to 35% of its staff.
Troika’s redundancies followed similar cuts at main Moscow-based rival Renaissance Capital, which after accepting a $500m investment from Russian billionaire Mikhail Prokhorov was forced to make hundreds of employees redundant as it cut a quarter of its staff.
Renaissance Capital had become known within the international banking community for its lucrative pay packets, which included large grants of stock and generous guarantees.
In 2007, Renaissance Capital’s total staff compensation bill came to $370m, equating to an average payout of more than $300,000 for each of the firm’s 1,145 employees.
Until recently, Renaissance Capital was deluged with CVs from staff at investment banks looking to escape job cuts in their own firms and join the seemingly invulnerable Russian boom.
Weeks before it was forced to accept Prokhorov’s money, Renaissance Capital hired John Porter, Morgan Stanley’s head of Middle Eastern and African equity capital markets, to lead its growth in the region.
Speaking to Financial News in the wake of Prokhorov’s investment, Renaissance Capital’s co-head of investment banking Andrew Cornthwaite said: “We have always taken the view that if you are involved in these markets you have to accept that some things will go badly wrong from time to time. We are comfortable with that.”
The hiring freeze has hit institutions thought to be relatively immune, such as state-owned bank VTB, which had spent hundreds of millions of dollars in the past 18 months building its investment banking business.
In a statement, VTB said it had frozen recruitment and would focus on risk management, setting up a unit to cope with the fallout from the financial crisis.
However, for staff made redundant by Russian investment banks the terms are still generous. Troika employees who lose their jobs will receive between five and eight months’ salary, which in many cases will not be far off the length of time employees had worked for the firm.
International banks are starting to scale back the size of their Russian operations too, just over 10 years after many of the same banks shut up shop in Moscow in the wake of the Russian Government’s default.
A Russian investment banker said: “It is different to 1998. Then, the pull back was focused on Russia; this time it is part of global retrenchment by banks to what they consider their core businesses.”
Rivals say Goldman Sachs is scaling back its staff in Moscow, though a source at the bank said it was currently “assessing market conditions, while the jobs of former ABN Amro employees are likely to be vulnerable in the wake of RBS’ announcement last week that it would make 3,000 redundant in its global banking and markets business.
This is a change from 11 months ago, when bankers such as Merrill Lynch chairman and chief executive John Thain flew into Moscow amid fanfare in the local and international media to meet then President Putin and open the bank’s Moscow office.
One banker at a Russian bank said: “Everyone has been hiring like mad for the last couple of years, but the party is well and truly over now.”
Merrill Lynch insisted it is not cutting staff in Moscow despite widespread rumours it is preparing to dismiss staff and even close the office. One source close to the bank said it was preparing to expand the operation. Despite the sombre mood in the Russian market, fee levels are not far down on 2007 and are substantially up on previous years.
Russian investment banking revenues for the year so far stand at $1.53bn, according to investment banking data provider Dealogic, down 13% on the same point last year, but up more than 50% on the same point in 2006, when fees hit a then record of $1.14bn.
Steve Meehan, head of UBS in Russia, said: “The number of competitors in this market will be reduced dramatically. For the long term, this correction will be positive for banks like us.”
The long-term prognosis for Russia is positive and, despite the fall in oil prices, most admit this is only a temporary blip. One Russian banker said: “The long-term trend has got to be for higher energy prices and Russia will obviously benefit from this. What you’re seeing now is the bursting of a bubble, not the end of Russia.”
Meehan said: “Russia is the only country that has got a top-10 position in all the mineral resources that matter."
Russian power plays highlight risks for minority investors
Financial News
Jason Corcoran in Moscow
17 November 2008
Energy company has been hit by governance failings
The crash in Russian equities has exposed serious risks for minority shareholders, despite an amelioration in the country’s corporate governance over the past few years.
The growth of Russian capital markets and the recent boom in initial public offerings has led to an improvement in corporate governance and accounting practices among the blue chips, but violations continue in the small to medium tier. A number of Russian utility companies that were spun off from the electricity monopoly have been particularly affected.
A group of 15 minority shareholders in power generator TGK-4 last month wrote to President Dmitry Medvedev claiming Onexim Group, an investment firm owned by Russian billionaire Mikhail Prokhorov, had exerted pressure on Russian officials to act in Prokhorov’s interest after Onexim agreed to buy it in May.
By law, as a majority shareholder, Onexim was required to offer to buy out minority investors. Investors said Prokhorov promised to do so.
However, following the slide in the Russian stock market, the required offer price for the buyout of TGK-4 shares stood at a 50% premium to the utility’s market price.
The group of minority shareholders, headed by Swedish investment firm Prosperity Capital and including a number of Russian and international hedge funds, claims Prokhorov reneged on his promise.
In an open letter to the President, the investors accused Prokohorov of “trying to avoid obligations by manipulating facts and using legal loopholes.
The shareholders wrote: “We appeal to you with a request to take immediate measures to protect the foundations of the Russian financial market and legal system, and to help set right these flagrant violations of the principles of corporate management.”
Alexander Branis, a director at Prosperity, which has about $4bn in funds under management, said the Kremlin had not replied. The Kremlin did not return calls inviting comment for this article.
James Fenkner, founder of Moscow hedge fund Red Star Invest and a local authority on corporate governance, added: “TGK-4 has been made into a strategic asset. The situation is borderline criminal, but you can see that corporate governance always gets worse at the bottom of a cycle.”
Onexim said it was no longer obliged to buy out the minority shareholders despite initially promising to do so when they acquired the majority sake in May.
Since its purchase of the stake, it had managed, in a way Prosperity questions, to lower its stake in TGK-4 below 50%, eliminating its obligation to buy the remainder of the shares.
TGK-4 also recently landed on a list of state “natural” monopolies, which prevents those companies from being bought. Investors claimed Onexim had applied pressure on the anti-monopoly regulator to include it on the list.
Prokhorov says he has a big capital investment programme, which will benefit the company and its shareholders who lost out from the buyout.
In a statement, he said: “I am certain that, once TGK-4 carries out its investment programme, the investors will earn a lot more than they would by pulling out their money now.”
Prosperity has sold down its original 18% stake of TGK-4, but remains a substantial shareholder. Other large investors include RusHydro and Federal Grid Company, which were spun off from the electricity monopoly UES. Fund sources suggested the latter two might come to a separate arrangement with Prokhorov in relation to their stakes in TGK-4.
Igor Goncharov, analyst at UBS in Moscow, said the market weakness had highlighted problems at energy companies TGK-2, TGK-4 and OGK-3 and could led to potential risks at OGK-2, 6, TGK-6, 7 and 9.
He said: “The most apparent risk is that the core shareholders may economically dilute minority shareholders by buying newly issued shares at current valuations, which we find to be substantially below intrinsic fair value for most of the companies.”
Branis of Prosperity said Russia’s main financial regulator, Federal Financial Markets Service was beginning to talk robustly about minority shareholders rights and had stepped in at OGK 3 and TGK-4 in a practical way. The free float in these other utilities is rather small and Goncharov is concerned that abuses could occur.
He said: “The regulator has mobilised itself to get involved in upholding the rule of the law and this is very encouraging.”
Jason Corcoran in Moscow
17 November 2008
Energy company has been hit by governance failings
The crash in Russian equities has exposed serious risks for minority shareholders, despite an amelioration in the country’s corporate governance over the past few years.
The growth of Russian capital markets and the recent boom in initial public offerings has led to an improvement in corporate governance and accounting practices among the blue chips, but violations continue in the small to medium tier. A number of Russian utility companies that were spun off from the electricity monopoly have been particularly affected.
A group of 15 minority shareholders in power generator TGK-4 last month wrote to President Dmitry Medvedev claiming Onexim Group, an investment firm owned by Russian billionaire Mikhail Prokhorov, had exerted pressure on Russian officials to act in Prokhorov’s interest after Onexim agreed to buy it in May.
By law, as a majority shareholder, Onexim was required to offer to buy out minority investors. Investors said Prokhorov promised to do so.
However, following the slide in the Russian stock market, the required offer price for the buyout of TGK-4 shares stood at a 50% premium to the utility’s market price.
The group of minority shareholders, headed by Swedish investment firm Prosperity Capital and including a number of Russian and international hedge funds, claims Prokhorov reneged on his promise.
In an open letter to the President, the investors accused Prokohorov of “trying to avoid obligations by manipulating facts and using legal loopholes.
The shareholders wrote: “We appeal to you with a request to take immediate measures to protect the foundations of the Russian financial market and legal system, and to help set right these flagrant violations of the principles of corporate management.”
Alexander Branis, a director at Prosperity, which has about $4bn in funds under management, said the Kremlin had not replied. The Kremlin did not return calls inviting comment for this article.
James Fenkner, founder of Moscow hedge fund Red Star Invest and a local authority on corporate governance, added: “TGK-4 has been made into a strategic asset. The situation is borderline criminal, but you can see that corporate governance always gets worse at the bottom of a cycle.”
Onexim said it was no longer obliged to buy out the minority shareholders despite initially promising to do so when they acquired the majority sake in May.
Since its purchase of the stake, it had managed, in a way Prosperity questions, to lower its stake in TGK-4 below 50%, eliminating its obligation to buy the remainder of the shares.
TGK-4 also recently landed on a list of state “natural” monopolies, which prevents those companies from being bought. Investors claimed Onexim had applied pressure on the anti-monopoly regulator to include it on the list.
Prokhorov says he has a big capital investment programme, which will benefit the company and its shareholders who lost out from the buyout.
In a statement, he said: “I am certain that, once TGK-4 carries out its investment programme, the investors will earn a lot more than they would by pulling out their money now.”
Prosperity has sold down its original 18% stake of TGK-4, but remains a substantial shareholder. Other large investors include RusHydro and Federal Grid Company, which were spun off from the electricity monopoly UES. Fund sources suggested the latter two might come to a separate arrangement with Prokhorov in relation to their stakes in TGK-4.
Igor Goncharov, analyst at UBS in Moscow, said the market weakness had highlighted problems at energy companies TGK-2, TGK-4 and OGK-3 and could led to potential risks at OGK-2, 6, TGK-6, 7 and 9.
He said: “The most apparent risk is that the core shareholders may economically dilute minority shareholders by buying newly issued shares at current valuations, which we find to be substantially below intrinsic fair value for most of the companies.”
Branis of Prosperity said Russia’s main financial regulator, Federal Financial Markets Service was beginning to talk robustly about minority shareholders rights and had stepped in at OGK 3 and TGK-4 in a practical way. The free float in these other utilities is rather small and Goncharov is concerned that abuses could occur.
He said: “The regulator has mobilised itself to get involved in upholding the rule of the law and this is very encouraging.”
Saturday, 15 November 2008
BNP Paribas Targets Russian Tie-Up
Financial News: Dow Jones International News
14 November 2008
By Jason Corcoran in Moscow
French bank BNP Paribas is understood to be in advanced talks about a partnership with one of Russia's top 20 banks, three months after the head of its securities business in Asia revealed it was exploring possible deals to strengthen its presence in developing economies.
Representatives from BNP Paribas have been conducting due diligence at the Moscow headquarters of Trust Bank for the past three weeks, according to three sources close to the Russian group.
A spokeswoman for Trust Bank denied talks were taking place. BNP Paribas declined to comment. Pierre Rousseau, chief executive of BNP Paribas' securities unit in Asia, announced plans in August to acquire a brokerage in the country and strengthen its foothold in the developing market.
Trust Bank three weeks ago received 7 billion rubles ($260 million) in emergency funding from the state banks.
It is also on approved list of banks that can tap the state development bank VEB, although the bank declines to say whether it has applied for additional funding.
Trust's main shareholders are Russia's Ilya Yurov, Nikolai Fetisov and Sergey Belyaev, who control about 80% of the holding group's shares. U.S. bank Merrill Lynch bought a 10% stake in the bank a year ago.
The holding company comprises of National Bank Trust, one of the leaders in retail banking with a presence in 200 cities across Russia, and Trust Investment Bank, a mid-tier broker.
BNP first arrived in Russia in 1974, but has made less impact than French rival Societe Generale (13080.FR), which boosted its stake in local bank Rosbank to more than 50% in February. It unsuccessfully bid for Russian Standard Bank, the country's leading consumer leader, in 2005. The French bank is rumored to have looked at buying Moscow brokerage Antanta Capital and Glitnir's Russian operation.
14 November 2008
By Jason Corcoran in Moscow
French bank BNP Paribas is understood to be in advanced talks about a partnership with one of Russia's top 20 banks, three months after the head of its securities business in Asia revealed it was exploring possible deals to strengthen its presence in developing economies.
Representatives from BNP Paribas have been conducting due diligence at the Moscow headquarters of Trust Bank for the past three weeks, according to three sources close to the Russian group.
A spokeswoman for Trust Bank denied talks were taking place. BNP Paribas declined to comment. Pierre Rousseau, chief executive of BNP Paribas' securities unit in Asia, announced plans in August to acquire a brokerage in the country and strengthen its foothold in the developing market.
Trust Bank three weeks ago received 7 billion rubles ($260 million) in emergency funding from the state banks.
It is also on approved list of banks that can tap the state development bank VEB, although the bank declines to say whether it has applied for additional funding.
Trust's main shareholders are Russia's Ilya Yurov, Nikolai Fetisov and Sergey Belyaev, who control about 80% of the holding group's shares. U.S. bank Merrill Lynch bought a 10% stake in the bank a year ago.
The holding company comprises of National Bank Trust, one of the leaders in retail banking with a presence in 200 cities across Russia, and Trust Investment Bank, a mid-tier broker.
BNP first arrived in Russia in 1974, but has made less impact than French rival Societe Generale (13080.FR), which boosted its stake in local bank Rosbank to more than 50% in February. It unsuccessfully bid for Russian Standard Bank, the country's leading consumer leader, in 2005. The French bank is rumored to have looked at buying Moscow brokerage Antanta Capital and Glitnir's Russian operation.
Monday, 10 November 2008
Russian hedge funds face threat of closure
Financial News
Jason Corcoran in Moscow
10 November 2008
The closure of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.
It is estimated about 70 hedge funds are operating in Russia and the Commonwealth of Independent States and analysts predict over half will be wiped out by next year.
The closure of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London.
Florin’s principals Neil Smith and Aidan Freyne are hoping to buy the fund’s architecture from its shareholders at Trust Capital and relaunch the fund as a distressed assets vehicle.
Smith was previously head of alternative investments at the UK’s Morley Fund Management while Freyne spent 19 years with Salomon Brothers and subsequently Citigroup.
Smith said: “Credit has been a difficult space to be in but it’s going to be great for distressed and acquiring debt at super-distressed levels.”
Fears are growing that other Russia funds with their mainly long-only bias may be wiped out like they were following the 1998 financial crisis.
Florin was set up earlier this year with $100m (€78m) in seed money from Trust Bank and other external sources.
James Fenkner, founder of Moscow hedge fund Red Star Invest, said most Russia funds were equity focused with only minimal shorting so most had been hit by the slide in stock markets.
He said: “I haven’t seen anything like this since 1998. It’s a case of survival. It’s going to be a blow-up of the good, the bad and the ugly.”
Fenkner said Red Star’s Austrian backer Erste Bank was standing behind the fund, which had bucked the trend and returned over 100% during October.
http://www.efinancialnews.com/homepage/content/3352423321
Jason Corcoran in Moscow
10 November 2008
The closure of a Russian hedge fund run by Florin Investment Management has led to fears many more could go under as investors flee emerging markets.
It is estimated about 70 hedge funds are operating in Russia and the Commonwealth of Independent States and analysts predict over half will be wiped out by next year.
The closure of Florin FSU Credit Opportunities Fund, which was invested in real estate and equity collateralised debt, led to 10 lay-offs at the firm in Moscow and London.
Florin’s principals Neil Smith and Aidan Freyne are hoping to buy the fund’s architecture from its shareholders at Trust Capital and relaunch the fund as a distressed assets vehicle.
Smith was previously head of alternative investments at the UK’s Morley Fund Management while Freyne spent 19 years with Salomon Brothers and subsequently Citigroup.
Smith said: “Credit has been a difficult space to be in but it’s going to be great for distressed and acquiring debt at super-distressed levels.”
Fears are growing that other Russia funds with their mainly long-only bias may be wiped out like they were following the 1998 financial crisis.
Florin was set up earlier this year with $100m (€78m) in seed money from Trust Bank and other external sources.
James Fenkner, founder of Moscow hedge fund Red Star Invest, said most Russia funds were equity focused with only minimal shorting so most had been hit by the slide in stock markets.
He said: “I haven’t seen anything like this since 1998. It’s a case of survival. It’s going to be a blow-up of the good, the bad and the ugly.”
Fenkner said Red Star’s Austrian backer Erste Bank was standing behind the fund, which had bucked the trend and returned over 100% during October.
http://www.efinancialnews.com/homepage/content/3352423321
Russian exchanges strive to modernise
Financial News
Jason Corcoran in Moscow
10 November 2008
A merger of Micex and RTS is more likely following the exodus of €108bn in foreign capital since August
Rybnikov: suspensions must stop
Moves to merge Moscow’s two stock exchanges, modernise market architecture and improve long-term liquidity have been given impetus following Russia’s worst trading collapse since the sovereign default in 1998.
The frequent closures of Moscow’s two main trading platforms have led many investors to switch to trading Russian Global Depositary Receipts and Russian American Depositary Receipts in London and New York.
Some 23 suspensions of trading on the rouble-denominated Micex since early September have contributed to a two-thirds slide in the volume of trading and an exodus of investors.
Micex chief executive Alexei Rybnikov hopes the suspensions will become a rarity once the financial regulator, the Federal Service for Financial Markets, introduces rule changes.
He said: “I hope this situation will not continue. We have told the regulator and the Government that closures should be rare and can only be invoked for systemic reasons and not when the exchanges are only falling.”
Micex and Moscow’s biggest investment firms have asked the regulator to return to the old trading rules and allow bigger fluctuations so that a suspension becomes an extraordinary measure.
Rybnikov said the trade volume in London had doubled on the days when operations had ceased on the Micex and RTS exchanges. The trading closures, designed to curb the magnitude of fluctuations, ranged from one hour to more than a day.
BNP Paribas has estimated that $140bn (€109bn) in capital has left Russia since the beginning of August amid war with Georgia, a decline in oil prices and the rout in the country’s stock market.
Problems with the domestic repo market exacerbated the equity sell-off in early October when banks and brokers failed to meet their obligations on time. If a repo deal is not completed on schedule, the lender may dump the stocks in the market.
Repo deals made up about two thirds of the trading volume at Micex while margin trades and short selling were estimated at up to 25%. During the crisis, the regulator at various times stopped trading in repo, margin trades and short selling.
Rybnikov said a number of institutions had been fined for defaulting on bilateral repo obligations while the banning of Utrade.Ru, a subsidiary of Uniastrum Bank, should serve as a warning to others.
Difficulties in settling its repo payments, worth about 7bn roubles (€202m), forced investment bank KIT Finance to sell up to state diamond miner Alrosa and rail monopoly Russian Railways for 100 roubles. Problems at Moscow’s leading brokerage Renaissance Capital led to its sale of a 50% stake to oligarch Mikhail Prokhorov at a knockdown price of $500m.
The debate over the reshaping of Russian financial architecture has brought the issue of a merger of Micex and RTS to the fore.
Rybnikov said: “It makes sense to unify the exchanges. Only certain issues can be resolved through consolidations. The discussion started a year ago and barely anyone is against it, but we need to know what the state thinks and whether it wants to be a regulator, an owner or an activist investor.”
Russia’s Central Bank is the main shareholder in Micex, the central company in the group with a 29.8% share. Leading brokers, who are shareholders and members of both exchanges, have been campaigning steadily for a union for several years.
Vladimir Milovidov, chairman of the FFMS, admitted to delegates at last month’s UBS investor forum in Moscow that new approaches to regulation need to be found.
He said: “It is very important to combat insider trading. Laws have been submitted to the State Duma and we are hopeful they will come before parliament in the new year. We also hope to have a draft law for bond holders and to protect their rights.”
Milovidov said negotiations to expand Russia’s circle of investors to encompass Chinese funds were advanced. “We could have double listings in Shanghai and Moscow and that would provide a stabilising role.”
Deepening Russia’s investor base, pension reform and accelerating mutual fund growth are high on the agenda.
“The Russian market probably fell more than other developing markets,” explained Rybnikov. “The reason for that is the general shortage of long-term domestic investors in Russia. About a million and a half people buy and sell securities from time to time. This is roughly one per cent of the population… It is next to nothing.”
Rybnikov applauded moves to allow funds accumulated in the pension system to be invested in stocks other than governmental securities and Government-guaranteed securities.
He said: “One more significant step is the decision to allow the central bank to become a trading member on the stock exchange which would ultimately, I hope, allow the central bank to accept a wider range of collateral to provide liquidity to not only the banking system but also to the financial system, including investment companies and brokers that are not licensed banking institutions. We have seen that, as a result of the crisis, decisions which have been delayed for years have started to be taken.”
However, Rybnikov warned that differences in two competing governmental blueprints for Moscow as an international financial centre would have to be resolved first.
He said: “The Ministry for Finance and the Federal Service for Financial Markets have their own plans. There are key differences to be resolved in ideas for architecture, taxation and the investor base.”
http://www.efinancialnews.com/tradingandtechnology/index/content/3352424751
Jason Corcoran in Moscow
10 November 2008
A merger of Micex and RTS is more likely following the exodus of €108bn in foreign capital since August
Rybnikov: suspensions must stop
Moves to merge Moscow’s two stock exchanges, modernise market architecture and improve long-term liquidity have been given impetus following Russia’s worst trading collapse since the sovereign default in 1998.
The frequent closures of Moscow’s two main trading platforms have led many investors to switch to trading Russian Global Depositary Receipts and Russian American Depositary Receipts in London and New York.
Some 23 suspensions of trading on the rouble-denominated Micex since early September have contributed to a two-thirds slide in the volume of trading and an exodus of investors.
Micex chief executive Alexei Rybnikov hopes the suspensions will become a rarity once the financial regulator, the Federal Service for Financial Markets, introduces rule changes.
He said: “I hope this situation will not continue. We have told the regulator and the Government that closures should be rare and can only be invoked for systemic reasons and not when the exchanges are only falling.”
Micex and Moscow’s biggest investment firms have asked the regulator to return to the old trading rules and allow bigger fluctuations so that a suspension becomes an extraordinary measure.
Rybnikov said the trade volume in London had doubled on the days when operations had ceased on the Micex and RTS exchanges. The trading closures, designed to curb the magnitude of fluctuations, ranged from one hour to more than a day.
BNP Paribas has estimated that $140bn (€109bn) in capital has left Russia since the beginning of August amid war with Georgia, a decline in oil prices and the rout in the country’s stock market.
Problems with the domestic repo market exacerbated the equity sell-off in early October when banks and brokers failed to meet their obligations on time. If a repo deal is not completed on schedule, the lender may dump the stocks in the market.
Repo deals made up about two thirds of the trading volume at Micex while margin trades and short selling were estimated at up to 25%. During the crisis, the regulator at various times stopped trading in repo, margin trades and short selling.
Rybnikov said a number of institutions had been fined for defaulting on bilateral repo obligations while the banning of Utrade.Ru, a subsidiary of Uniastrum Bank, should serve as a warning to others.
Difficulties in settling its repo payments, worth about 7bn roubles (€202m), forced investment bank KIT Finance to sell up to state diamond miner Alrosa and rail monopoly Russian Railways for 100 roubles. Problems at Moscow’s leading brokerage Renaissance Capital led to its sale of a 50% stake to oligarch Mikhail Prokhorov at a knockdown price of $500m.
The debate over the reshaping of Russian financial architecture has brought the issue of a merger of Micex and RTS to the fore.
Rybnikov said: “It makes sense to unify the exchanges. Only certain issues can be resolved through consolidations. The discussion started a year ago and barely anyone is against it, but we need to know what the state thinks and whether it wants to be a regulator, an owner or an activist investor.”
Russia’s Central Bank is the main shareholder in Micex, the central company in the group with a 29.8% share. Leading brokers, who are shareholders and members of both exchanges, have been campaigning steadily for a union for several years.
Vladimir Milovidov, chairman of the FFMS, admitted to delegates at last month’s UBS investor forum in Moscow that new approaches to regulation need to be found.
He said: “It is very important to combat insider trading. Laws have been submitted to the State Duma and we are hopeful they will come before parliament in the new year. We also hope to have a draft law for bond holders and to protect their rights.”
Milovidov said negotiations to expand Russia’s circle of investors to encompass Chinese funds were advanced. “We could have double listings in Shanghai and Moscow and that would provide a stabilising role.”
Deepening Russia’s investor base, pension reform and accelerating mutual fund growth are high on the agenda.
“The Russian market probably fell more than other developing markets,” explained Rybnikov. “The reason for that is the general shortage of long-term domestic investors in Russia. About a million and a half people buy and sell securities from time to time. This is roughly one per cent of the population… It is next to nothing.”
Rybnikov applauded moves to allow funds accumulated in the pension system to be invested in stocks other than governmental securities and Government-guaranteed securities.
He said: “One more significant step is the decision to allow the central bank to become a trading member on the stock exchange which would ultimately, I hope, allow the central bank to accept a wider range of collateral to provide liquidity to not only the banking system but also to the financial system, including investment companies and brokers that are not licensed banking institutions. We have seen that, as a result of the crisis, decisions which have been delayed for years have started to be taken.”
However, Rybnikov warned that differences in two competing governmental blueprints for Moscow as an international financial centre would have to be resolved first.
He said: “The Ministry for Finance and the Federal Service for Financial Markets have their own plans. There are key differences to be resolved in ideas for architecture, taxation and the investor base.”
http://www.efinancialnews.com/tradingandtechnology/index/content/3352424751
Thursday, 30 October 2008
LSE slows Russia push --- Market turmoil, IPO drought curbs Moscow office plans
Wall Street Journal Europe
By Jason Corcoran in Moscow
30 October 2008
Moscow -- THE LONDON Stock Exchange Group PLC has dropped a plan to open an office in Moscow after the financial crisis wiped out the prospects for Russian stock issuance for at least 12 months.
The decision to call off the Moscow office was taken after a group of companies in Russia and the Commonwealth of Independent States pulled stock listings amid a plunge in stock markets. Until recently, Russia had been seen as a possible source of growth for the larger exchange, which is facing competition from new rivals.
Jon Edwards, director of CIS and Central and Eastern Europe at the LSE, said the exchange had given the green light for the opening of a Moscow office before the country's economic crisis began in August. "We pulled plans to open in Moscow when we realized the severity of the crisis," he said.
Russian public-affairs and media company PBN said capital-raising activity in the CIS had slumped in the third quarter to half of the level seen last year, and is now at its lowest level since 2004.
So far this year, there have been seven initial public offerings by companies in Russia, Kazakhstan and the Ukraine, raising $1.7 billion, according to PBN. "To date we know of 43 companies that postponed or pulled their flotations this year," said Peter Necarsulmer, PBN's chief executive.
"We are very aggressively focusing in Russia's regions for companies ready to hit the ground running for capital raising, which we hope will open 12 months rather than 18 months as is expected," Mr. Edwards said at the sidelines of an investor conference. He said he had recently returned from company visits in metals-and-mining town Novosibirsk in Siberia and oil town Khanty-Mansiysk in Russia's Far East.
Like many other large exchanges, the LSE is dealing with the effects of the economic downturn and rising competition. Revenue at Europe's main incumbent stock exchanges have come under pressure in recent months from falling stock markets and the emergence of low-cost rivals, such as Turquoise and Nasdaq OMX Europe.
According to the World Federation of Exchanges, the total value of shares traded at the LSE fell more sharply than at any other large European stock market in the year to September, although the LSE's trading volumes rose faster than its peers.
Faced with low-cost rivals and dwindling volume, the LSE is likely to cut the fees it charges traders by 10% over the coming year to maintain competitiveness, said Credit Suisse analyst Rupak Ghose in a research note released Wednesday.
A spokeswoman for the LSE declined to comment on potential fee cuts and said that the WFE figures were of limited interest because different exchanges take report trading figures differently.
(Copyright (c) 2008, Dow Jones & Company, Inc.)
By Jason Corcoran in Moscow
30 October 2008
Moscow -- THE LONDON Stock Exchange Group PLC has dropped a plan to open an office in Moscow after the financial crisis wiped out the prospects for Russian stock issuance for at least 12 months.
The decision to call off the Moscow office was taken after a group of companies in Russia and the Commonwealth of Independent States pulled stock listings amid a plunge in stock markets. Until recently, Russia had been seen as a possible source of growth for the larger exchange, which is facing competition from new rivals.
Jon Edwards, director of CIS and Central and Eastern Europe at the LSE, said the exchange had given the green light for the opening of a Moscow office before the country's economic crisis began in August. "We pulled plans to open in Moscow when we realized the severity of the crisis," he said.
Russian public-affairs and media company PBN said capital-raising activity in the CIS had slumped in the third quarter to half of the level seen last year, and is now at its lowest level since 2004.
So far this year, there have been seven initial public offerings by companies in Russia, Kazakhstan and the Ukraine, raising $1.7 billion, according to PBN. "To date we know of 43 companies that postponed or pulled their flotations this year," said Peter Necarsulmer, PBN's chief executive.
"We are very aggressively focusing in Russia's regions for companies ready to hit the ground running for capital raising, which we hope will open 12 months rather than 18 months as is expected," Mr. Edwards said at the sidelines of an investor conference. He said he had recently returned from company visits in metals-and-mining town Novosibirsk in Siberia and oil town Khanty-Mansiysk in Russia's Far East.
Like many other large exchanges, the LSE is dealing with the effects of the economic downturn and rising competition. Revenue at Europe's main incumbent stock exchanges have come under pressure in recent months from falling stock markets and the emergence of low-cost rivals, such as Turquoise and Nasdaq OMX Europe.
According to the World Federation of Exchanges, the total value of shares traded at the LSE fell more sharply than at any other large European stock market in the year to September, although the LSE's trading volumes rose faster than its peers.
Faced with low-cost rivals and dwindling volume, the LSE is likely to cut the fees it charges traders by 10% over the coming year to maintain competitiveness, said Credit Suisse analyst Rupak Ghose in a research note released Wednesday.
A spokeswoman for the LSE declined to comment on potential fee cuts and said that the WFE figures were of limited interest because different exchanges take report trading figures differently.
(Copyright (c) 2008, Dow Jones & Company, Inc.)
Tuesday, 28 October 2008
VTB opens overseas offices
Financial News
Jason Corcoran in Moscow
28 October 2008
Russian state bank VTB is defying the global downturn and dismal domestic markets by opening new sales and representative offices for its investment banking arm in New York and Dubai.
Yulia Chupina, the VTB board member responsible for the expansion of its investment banking subsidiary, said the bank would open offices shortly in the US and Dubai.
She said: "We are being cost conscious by freezing hiring and development in some areas while continuing to develop in other areas."
VTB has already established three investment banking hubs in Moscow, London, and Singapore. It has dominated this year's hiring war in Russia by recruiting bankers from Deutsche Bank and key figures from a number of banks in Moscow.
In response to the crisis, the bank said it was considering cutting costs by between 15% and 20%, and had postponed a move into its new offices in Federation Tower, the tallest skyscraper in the emerging business district of Moscow City.
Chupina confirmed that VTB was no longer interested in buying a stake in Renaissance Capital's troubled consumer lending arm Renaissance Credit.
The bank is believed to have abandoned the deal after Renaissance Capital founder Stephen Jennings declined to cede control.
—Write to Jason Corcoran at jasonwcorcoran@googlemail.com
Jason Corcoran in Moscow
28 October 2008
Russian state bank VTB is defying the global downturn and dismal domestic markets by opening new sales and representative offices for its investment banking arm in New York and Dubai.
Yulia Chupina, the VTB board member responsible for the expansion of its investment banking subsidiary, said the bank would open offices shortly in the US and Dubai.
She said: "We are being cost conscious by freezing hiring and development in some areas while continuing to develop in other areas."
VTB has already established three investment banking hubs in Moscow, London, and Singapore. It has dominated this year's hiring war in Russia by recruiting bankers from Deutsche Bank and key figures from a number of banks in Moscow.
In response to the crisis, the bank said it was considering cutting costs by between 15% and 20%, and had postponed a move into its new offices in Federation Tower, the tallest skyscraper in the emerging business district of Moscow City.
Chupina confirmed that VTB was no longer interested in buying a stake in Renaissance Capital's troubled consumer lending arm Renaissance Credit.
The bank is believed to have abandoned the deal after Renaissance Capital founder Stephen Jennings declined to cede control.
—Write to Jason Corcoran at jasonwcorcoran@googlemail.com
No crisis detox for DTEK
Business New Europe
Jason Corcoran in Moscow
October 28, 2008
The richest man in Ukraine and reputedly the whole of the former Soviet Union, Rinat Akhmetov, is embarking on a bold acquisition programme to pick up cheap energy assets across Central and Eastern Europe at a time when other oligarchs in the region are sweating over making margin calls.
Akhmetov, estimated by the Russian daily Kommersant to be worth $31.5bn, has largely been insulated from the international financial crisis due to the consistent demand for coal and electricity and his minimal exposure to the equity markets.
DTEK, Akhmetov's main Ukraine-based energy holding, is now talking to banks about assembling a cash pile to target coal assets worth up to $500m in Russia and the rest of Central and Eastern Europe. "We are pretty much immune to the fluctuations of the world economy and we are cash positive so we can fund our modernisation programme and our working capital through our own cash so we don't need to use the external market. We do need external markets only to fund M&A and refinance our debt," Yuriy Ryzhenkov, DTEK's chief financial officer, told bne in an interview.
Ryzhenkov said DTEK is looking to buy assets cheaply in the resource base in Russia close to Ukraine and westward in Poland, Romania and Hungary. "We are trying to balance our whole chain of production from coal mining to the end customer. We are also looking outside of Ukraine westwards for new customers and new generations in countries like Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine," he said.
A bigger whole
Kyiv-headquartered DTEK is part of Ukraine's largest conglomerate Systems Capital Management (SCM) and is the leader in Ukraine's fuel energy industry. It runs the energy assets of Donetsk-based SCM and unites 16 enterprises, including Skhidenerho energy generating company, Service Invest and Enerhovuhillia energy distribution companies. DTEK is Ukraine's largest coal producer, owning the Pavlogradugol unit and the Donbass Komsomolets mine SHKD.PFT. It also owns electricity generator Vostokenergo and the electricity network Servis-Invest and PES-Energougol. According to 2007 figures, its market share in Ukrainian coal mining industry was 20.9%; its share in thermal power generation was 27.0%; and its market share in electricity distribution was 5.4%.
Last year, DTEK earned revenues equivalent to $1.86bn compared with $1.04bn in 2006, and operating profit more than doubled to almost $496m from $243m. Net profit rose to $196m from $102m.
Metinvest, Akhmetov's metals and mining holding is vertically integrated, with its energy needs met from DTEK. When markets improve, analysts expect both DTEK and Metinvest to move forward with their IPO plans and to provide an interesting cash-out to investors with a two- to three-year horizon.
Ryzhenkov said the ambitious $2bn capex programme of DTEK, which is wholly owned by Akhmetov and his wife, was also unaffected by the financial crisis. "The majority of it is addressed towards the coal mining assets. We are planning bringing the productivity of those assets up to the best western standards and that would put us in a stronger position against competitors outside of Ukraine. This programme is to be funded through our own cash flows. At the moment, DTEK is not paying dividends and all money generated is reinvested into existing assets."
With western banks offering unattractive terms for loans, Ryzhenkov said DTEK was looking at other avenues to fund its expansion programme such as bond issuance, syndicated loans with relationship banks and leasing transactions. Russian bank Troika Dialog has already underwritten two tranches worth UAH500m ($100m) on behalf of DTEK, but the company remains on hold, as they don't have a dire need to sell at current rates of 15-25% per annum. DTEK postponed the issuance of its debut Eurobond last year and is waiting for a window in the current market before opting for that financing route.
In recognition of DTEK's rude financial health, ratings agency Fitch in September placed the company on a positive outlook, although it did cite poor liquidity and a relatively short debt maturity profile as negatives. "We were quite pleased by the upgrade," commented Akhmetov. "We improved our financing metrics since last year when we first obtained the rating. At the same time as notching down the Ukraine rating outlook to negative, they changed our outlook to positive which was a good sign that we are doing something right and the agency considers us becoming more stable and self-sufficient."
Akhmetov has been a very divisive figure in Ukrainian politics thanks to his own political ambitions and close ties to Viktor Yanukovych, the twice-elected prime minister and leader of the opposition Party of the Regions. But Ryzhenkov insists that the negative press hasn't impeded the progress of the company. "Obviously, the company gets associated with the beneficial shareholder whenever we do something." However, he insists that while DTEK did indeed grow during the time the Party of Regions was in government, the company also prospered when President Viktor Yushchenko's party and Prime Minister Yulia Tymoshenko's eponymous bloc were in power too. "I can say the company is pretty much immune towards the political landscape," he said.
Even so, the latest round of political wrangling, which forced snap elections to be called for December, has had some effect, by slowing the progress of privatisation in the electricity generation sector. However, DTEK is optimistic the New Year will bring developments.
http://businessneweurope.eu/storyf1332
Jason Corcoran in Moscow
October 28, 2008
The richest man in Ukraine and reputedly the whole of the former Soviet Union, Rinat Akhmetov, is embarking on a bold acquisition programme to pick up cheap energy assets across Central and Eastern Europe at a time when other oligarchs in the region are sweating over making margin calls.
Akhmetov, estimated by the Russian daily Kommersant to be worth $31.5bn, has largely been insulated from the international financial crisis due to the consistent demand for coal and electricity and his minimal exposure to the equity markets.
DTEK, Akhmetov's main Ukraine-based energy holding, is now talking to banks about assembling a cash pile to target coal assets worth up to $500m in Russia and the rest of Central and Eastern Europe. "We are pretty much immune to the fluctuations of the world economy and we are cash positive so we can fund our modernisation programme and our working capital through our own cash so we don't need to use the external market. We do need external markets only to fund M&A and refinance our debt," Yuriy Ryzhenkov, DTEK's chief financial officer, told bne in an interview.
Ryzhenkov said DTEK is looking to buy assets cheaply in the resource base in Russia close to Ukraine and westward in Poland, Romania and Hungary. "We are trying to balance our whole chain of production from coal mining to the end customer. We are also looking outside of Ukraine westwards for new customers and new generations in countries like Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine," he said.
A bigger whole
Kyiv-headquartered DTEK is part of Ukraine's largest conglomerate Systems Capital Management (SCM) and is the leader in Ukraine's fuel energy industry. It runs the energy assets of Donetsk-based SCM and unites 16 enterprises, including Skhidenerho energy generating company, Service Invest and Enerhovuhillia energy distribution companies. DTEK is Ukraine's largest coal producer, owning the Pavlogradugol unit and the Donbass Komsomolets mine SHKD.PFT. It also owns electricity generator Vostokenergo and the electricity network Servis-Invest and PES-Energougol. According to 2007 figures, its market share in Ukrainian coal mining industry was 20.9%; its share in thermal power generation was 27.0%; and its market share in electricity distribution was 5.4%.
Last year, DTEK earned revenues equivalent to $1.86bn compared with $1.04bn in 2006, and operating profit more than doubled to almost $496m from $243m. Net profit rose to $196m from $102m.
Metinvest, Akhmetov's metals and mining holding is vertically integrated, with its energy needs met from DTEK. When markets improve, analysts expect both DTEK and Metinvest to move forward with their IPO plans and to provide an interesting cash-out to investors with a two- to three-year horizon.
Ryzhenkov said the ambitious $2bn capex programme of DTEK, which is wholly owned by Akhmetov and his wife, was also unaffected by the financial crisis. "The majority of it is addressed towards the coal mining assets. We are planning bringing the productivity of those assets up to the best western standards and that would put us in a stronger position against competitors outside of Ukraine. This programme is to be funded through our own cash flows. At the moment, DTEK is not paying dividends and all money generated is reinvested into existing assets."
With western banks offering unattractive terms for loans, Ryzhenkov said DTEK was looking at other avenues to fund its expansion programme such as bond issuance, syndicated loans with relationship banks and leasing transactions. Russian bank Troika Dialog has already underwritten two tranches worth UAH500m ($100m) on behalf of DTEK, but the company remains on hold, as they don't have a dire need to sell at current rates of 15-25% per annum. DTEK postponed the issuance of its debut Eurobond last year and is waiting for a window in the current market before opting for that financing route.
In recognition of DTEK's rude financial health, ratings agency Fitch in September placed the company on a positive outlook, although it did cite poor liquidity and a relatively short debt maturity profile as negatives. "We were quite pleased by the upgrade," commented Akhmetov. "We improved our financing metrics since last year when we first obtained the rating. At the same time as notching down the Ukraine rating outlook to negative, they changed our outlook to positive which was a good sign that we are doing something right and the agency considers us becoming more stable and self-sufficient."
Akhmetov has been a very divisive figure in Ukrainian politics thanks to his own political ambitions and close ties to Viktor Yanukovych, the twice-elected prime minister and leader of the opposition Party of the Regions. But Ryzhenkov insists that the negative press hasn't impeded the progress of the company. "Obviously, the company gets associated with the beneficial shareholder whenever we do something." However, he insists that while DTEK did indeed grow during the time the Party of Regions was in government, the company also prospered when President Viktor Yushchenko's party and Prime Minister Yulia Tymoshenko's eponymous bloc were in power too. "I can say the company is pretty much immune towards the political landscape," he said.
Even so, the latest round of political wrangling, which forced snap elections to be called for December, has had some effect, by slowing the progress of privatisation in the electricity generation sector. However, DTEK is optimistic the New Year will bring developments.
http://businessneweurope.eu/storyf1332
Thursday, 16 October 2008
Oligarchs make the most of Russian M&A activity
Financial News
Jason Corcoran in Moscow 13 October 2008
Many holdings are up for sale
Oligarchs on opposing sides of the cash crisis are set to trigger a boom in merger and acquisition activity in Russia and the Commonwealth of Independent States.
Cash-tight tycoons are being forced to sell holdings to meet pending margin calls while their rouble-wealthy counterparts are sizing up distressed assets affected by the liquidity crunch.
Oligarch Oleg Deripaska had to sell a stake in Canadian auto parts maker Magna to meet a $1bn (€734m) margin call while Ukrainian billionaire Kostyantin Zhevago was forced to sell a large stake in Swiss-based ore miner Ferrexpo worth $180 in order to meet a margin call by JP Morgan.
Analysts are predicting Deripaska, who has $28bn, may have to divest further holdings in his Basic Element investment vehicle to shore up his finances.
Marat Gabitov, a Moscow analyst at UniCredit, said: “We see the news as further confirmation that the global financial crisis may be worse than we previously deemed. We also see risks for other public names in which Deripaska controls significant minority stakes – Strabag, Hochtief and GM, of which we know that Strabag was financed with a bank loan.”
Oligarchs with limited equity exposure are looking to pounce on distressed assets in Russia and the Commonwealth of Independent States. Rinat Akhmetov, the wealthiest man in Europe and Russia with an estimated fortune of $31.1bn, is putting together a war chest to fund an acquisition programme of coal assets worth between $50m and $500m in Russia, Ukraine and other parts of eastern Europe.
Yuriy Ryzhenkov, chief financial officer of Akhmetov’s main Ukraine-based energy holding company DTEK told Financial News: “We are now looking outside Ukraine, having focussed ourselves domestically until recently.
Now, we are looking at the resource base in Russia, especially regions close to Ukraine due to logistical reasons. We are also looking outside Ukraine westwards for new customers and new generations in Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine.”
Ryzhenkov said DTEK would like to buy assets cheaply and then turn them round. He said: “We have some core abilities to turn distressed assets round and it is our experience in Ukraine and especially in coalmining to work on geologically difficult assets.”
Stephen Jennings, chief executive of Renaissance Capital, is forecasting an M&A boom for his brokerage as Russian and CIS businessmen are forced to sell to those with liquidity.
He said: “Consolidation in finance, for instance among banks, brokers and asset managers, will be extraordinary.”
Jennings last month sold half his business to oligarch Mikhail Prokhorov’s Onexim investment fund for $500m, even though Renaissance had been valued by bankers at $3bn to $4bn a year ago when VTB Bank made its approach.
The Wall Street Journal revealed that Dutch bank Fortis had appealed directly to billionaire Suleiman Kerimov’s Millennium Fund during the summer for a €400m ($546m) cash injection in the context of a share issue.
Swiss-based Millennium Fund already owns about 2% of Fortis shares along with stakes in US investment bank Morgan Stanley, Swiss bank Credit Suisse and Deutsche Bank of Germany, according to the Wall Street Journal.
Analysts are predicting Kerimov might return his attention to Russia having sold down his stakes in blue chips before the downturn. Oligarchs exposed to Russia’s property and construction sectors are already offloading assets and freezing developments as the country’s real estate bubble shows signs of bursting.
Ratings agency Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that developer Mirax is likely to undertake something similar highlight a deterioration in the funding environment for developers.
Sistema-Hals is the listed property arm of conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.
Mirax, Sistema-Hals and Inteko headed by Russia’s wealthiest woman Yelena Baturina have already announced project freezes over the next year, according to reports in the Russian press.
Liquidity problems have extended to Russia’s consumer sector.
Yevgeny Chichvarkin, chairman of Russia’ largest mobile phone retailer Euroset, said he had sold his company for “a few kopeks” to billionaire Alexander Mamut after being unable to find a bank to refinance its debt.
Mamut’s investment company ANN may have used some of those proceeds from his sale of a 38% stake in insurer Ingosstrakh to Czech investment firm PPF for €600m to acquire 100% of Euroset for $400m.
State banks such as VTB are also planning to capitalise on assets trading at distressed levels then resell them later for a profit. VTB chief executive Andrei Kostin told a Reuters summit in September that the bank is accumulating a “cash fist” to potentially buy stakes in businesses.
Russian banking, consumer and real estate sectors were mentioned, as well as banking assets abroad. Some oligarchs and billionaires had the prescience or good fortune to offload large stakes in Russian blue chips before the market slide, which has wiped 60% of the value of the domestic equity markets since late July. Tycoons were encourage to buy into “People’s IPOs” by the Kremlin in the past couple of years, including Rosneft, Sberbank and VTB.
One Moscow trader said: “Some oligarchs sold out after a year of these major listings. They locked in some profit and got out but others have been hurt.”
Baturina almost halved her stake in state savings bank Sberbank from 0.68% to 0.38% after the shares lost half their value during the second quarter this year.
Baturina, who has an estimated fortune of $4bn, initially bought into Sberbank last year following the bank’s IPO.
Her equity fund Kontinental’s proceeds from securities sold in the second quarter came to 5.4bn roubles (€151m), according to the fund’s financial statement.
Kerimov, who owns Nafta Moskva oil refinery, is reported in the Russian press to have sold down his 6% stake in Sberbank and 4.5% stake in energy group Gazprom.
Kerimov has also sold stakes in silver producer Polymetal for around $2bn, in a construction project for $3.5bn and in NTK cable TV operator for another $1.5bn.
Filaret Galchev, owner of Russia’s largest cement producer Eurocement, has cut his stake in Sberbank to 1.85% from 3%. Galchev has since acquired a 6% stake in Swiss cement group Holcim.
Recruiters are reporting a growing trend by oligarchs to hire seasoned fund managers and bankers from investment firms and banks as they increased their private equity-style investment funds.
Millhouse, the investment vehicle of Russian oligarch Roman Abramovich, hired the general director of MDM Bank’s MDM Asset Management in July to run its portfolio of investments while Prokorov’s main strategist and head of Onexim is Dmitry Razumov, a former banker at Renaissance Capital.
Jason Corcoran in Moscow 13 October 2008
Many holdings are up for sale
Oligarchs on opposing sides of the cash crisis are set to trigger a boom in merger and acquisition activity in Russia and the Commonwealth of Independent States.
Cash-tight tycoons are being forced to sell holdings to meet pending margin calls while their rouble-wealthy counterparts are sizing up distressed assets affected by the liquidity crunch.
Oligarch Oleg Deripaska had to sell a stake in Canadian auto parts maker Magna to meet a $1bn (€734m) margin call while Ukrainian billionaire Kostyantin Zhevago was forced to sell a large stake in Swiss-based ore miner Ferrexpo worth $180 in order to meet a margin call by JP Morgan.
Analysts are predicting Deripaska, who has $28bn, may have to divest further holdings in his Basic Element investment vehicle to shore up his finances.
Marat Gabitov, a Moscow analyst at UniCredit, said: “We see the news as further confirmation that the global financial crisis may be worse than we previously deemed. We also see risks for other public names in which Deripaska controls significant minority stakes – Strabag, Hochtief and GM, of which we know that Strabag was financed with a bank loan.”
Oligarchs with limited equity exposure are looking to pounce on distressed assets in Russia and the Commonwealth of Independent States. Rinat Akhmetov, the wealthiest man in Europe and Russia with an estimated fortune of $31.1bn, is putting together a war chest to fund an acquisition programme of coal assets worth between $50m and $500m in Russia, Ukraine and other parts of eastern Europe.
Yuriy Ryzhenkov, chief financial officer of Akhmetov’s main Ukraine-based energy holding company DTEK told Financial News: “We are now looking outside Ukraine, having focussed ourselves domestically until recently.
Now, we are looking at the resource base in Russia, especially regions close to Ukraine due to logistical reasons. We are also looking outside Ukraine westwards for new customers and new generations in Romania, Hungary and Poland. The assets there can have a synergy with existing assets in Ukraine.”
Ryzhenkov said DTEK would like to buy assets cheaply and then turn them round. He said: “We have some core abilities to turn distressed assets round and it is our experience in Ukraine and especially in coalmining to work on geologically difficult assets.”
Stephen Jennings, chief executive of Renaissance Capital, is forecasting an M&A boom for his brokerage as Russian and CIS businessmen are forced to sell to those with liquidity.
He said: “Consolidation in finance, for instance among banks, brokers and asset managers, will be extraordinary.”
Jennings last month sold half his business to oligarch Mikhail Prokhorov’s Onexim investment fund for $500m, even though Renaissance had been valued by bankers at $3bn to $4bn a year ago when VTB Bank made its approach.
The Wall Street Journal revealed that Dutch bank Fortis had appealed directly to billionaire Suleiman Kerimov’s Millennium Fund during the summer for a €400m ($546m) cash injection in the context of a share issue.
Swiss-based Millennium Fund already owns about 2% of Fortis shares along with stakes in US investment bank Morgan Stanley, Swiss bank Credit Suisse and Deutsche Bank of Germany, according to the Wall Street Journal.
Analysts are predicting Kerimov might return his attention to Russia having sold down his stakes in blue chips before the downturn. Oligarchs exposed to Russia’s property and construction sectors are already offloading assets and freezing developments as the country’s real estate bubble shows signs of bursting.
Ratings agency Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that developer Mirax is likely to undertake something similar highlight a deterioration in the funding environment for developers.
Sistema-Hals is the listed property arm of conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.
Mirax, Sistema-Hals and Inteko headed by Russia’s wealthiest woman Yelena Baturina have already announced project freezes over the next year, according to reports in the Russian press.
Liquidity problems have extended to Russia’s consumer sector.
Yevgeny Chichvarkin, chairman of Russia’ largest mobile phone retailer Euroset, said he had sold his company for “a few kopeks” to billionaire Alexander Mamut after being unable to find a bank to refinance its debt.
Mamut’s investment company ANN may have used some of those proceeds from his sale of a 38% stake in insurer Ingosstrakh to Czech investment firm PPF for €600m to acquire 100% of Euroset for $400m.
State banks such as VTB are also planning to capitalise on assets trading at distressed levels then resell them later for a profit. VTB chief executive Andrei Kostin told a Reuters summit in September that the bank is accumulating a “cash fist” to potentially buy stakes in businesses.
Russian banking, consumer and real estate sectors were mentioned, as well as banking assets abroad. Some oligarchs and billionaires had the prescience or good fortune to offload large stakes in Russian blue chips before the market slide, which has wiped 60% of the value of the domestic equity markets since late July. Tycoons were encourage to buy into “People’s IPOs” by the Kremlin in the past couple of years, including Rosneft, Sberbank and VTB.
One Moscow trader said: “Some oligarchs sold out after a year of these major listings. They locked in some profit and got out but others have been hurt.”
Baturina almost halved her stake in state savings bank Sberbank from 0.68% to 0.38% after the shares lost half their value during the second quarter this year.
Baturina, who has an estimated fortune of $4bn, initially bought into Sberbank last year following the bank’s IPO.
Her equity fund Kontinental’s proceeds from securities sold in the second quarter came to 5.4bn roubles (€151m), according to the fund’s financial statement.
Kerimov, who owns Nafta Moskva oil refinery, is reported in the Russian press to have sold down his 6% stake in Sberbank and 4.5% stake in energy group Gazprom.
Kerimov has also sold stakes in silver producer Polymetal for around $2bn, in a construction project for $3.5bn and in NTK cable TV operator for another $1.5bn.
Filaret Galchev, owner of Russia’s largest cement producer Eurocement, has cut his stake in Sberbank to 1.85% from 3%. Galchev has since acquired a 6% stake in Swiss cement group Holcim.
Recruiters are reporting a growing trend by oligarchs to hire seasoned fund managers and bankers from investment firms and banks as they increased their private equity-style investment funds.
Millhouse, the investment vehicle of Russian oligarch Roman Abramovich, hired the general director of MDM Bank’s MDM Asset Management in July to run its portfolio of investments while Prokorov’s main strategist and head of Onexim is Dmitry Razumov, a former banker at Renaissance Capital.
Sunday, 12 October 2008
EU monitors in Georgia confirm Russian withdrawal
The Irish Times
JASON CORCORAN in Moscow
Saturday, October 11, 2008
EU MONITORS in Georgia have confirmed that Russian forces have dismantled 17 checkpoints, one signals post and one military base in zones adjacent to breakaway regions Abkhazia and South Ossetia.
But, while EU foreign policy chief Javier Solana said yesterday Russian troops have completed their withdrawal from the areas in line with yesterday's deadline,French foreign minister Bernard Kouchner complained that Russia still occupies three disputed pockets of land - Akhalgori and Perevi in South Ossetia, and the Kodori Gorge in Abkhazia - areas that were under Georgian control before hostilities broke out.
Col Dorcha Lee, a former army officer and veteran of UN peacekeeping missions in Lebanon, the Middle East and Serbia who heads the Irish group in the 200-strong European Union Monitoring Mission (EUMM) admits that their work is difficult and breaking new ground. "This is a new experience for the EU and we are hyper-sensitive to its needs and to succeed here. We hope to use this as a future model for conflicts if it works. It's a question of confidence-building so refugees can feel safe returning home and our presence is vital in that respect."
The other members of the Irish group are Peter McMahon, a former Air Corp lieutenant colonel, Peter Emerson, a Russian speaker and lecturer in consensus politics, and Eithne MacDermott, a East European studies specialist.
The Irish peacekeepers have travelled on patrol in armoured vehicles up the eastern side of the South Ossetian buffer zone from their field office at Bazaleti.
The EUMM is scheduled to last a year and the Irish representatives are on a four-month stint.
EU monitors began witnessing Russian troops bulldozing checkpoints and withdrawing since earlier this week.
The Irish group were visited by the Irish Ambassador to Georgia, Geoffrey Keating, who also saw the main refugee camp in Gori where 3,000 displaced citizens are waiting to return home. He witnessed the delivery of food donations organised by Irish expat Dr Mike McCarthy and local Irish businessmen.
Mr Keating, also Ambassador to Bulgaria, is based in Sofia. Overall, the Irish people and Government have contributed €250,000 in humanitarian assistance following the recent conflict. "People are now very anxious to get back to their homes and villages and start rebuilding their lives, but they are fearful of militias in both regions," said Dr McCarthy who runs an international medical service from the Georgian capital Tbilisi.
JASON CORCORAN in Moscow
Saturday, October 11, 2008
EU MONITORS in Georgia have confirmed that Russian forces have dismantled 17 checkpoints, one signals post and one military base in zones adjacent to breakaway regions Abkhazia and South Ossetia.
But, while EU foreign policy chief Javier Solana said yesterday Russian troops have completed their withdrawal from the areas in line with yesterday's deadline,French foreign minister Bernard Kouchner complained that Russia still occupies three disputed pockets of land - Akhalgori and Perevi in South Ossetia, and the Kodori Gorge in Abkhazia - areas that were under Georgian control before hostilities broke out.
Col Dorcha Lee, a former army officer and veteran of UN peacekeeping missions in Lebanon, the Middle East and Serbia who heads the Irish group in the 200-strong European Union Monitoring Mission (EUMM) admits that their work is difficult and breaking new ground. "This is a new experience for the EU and we are hyper-sensitive to its needs and to succeed here. We hope to use this as a future model for conflicts if it works. It's a question of confidence-building so refugees can feel safe returning home and our presence is vital in that respect."
The other members of the Irish group are Peter McMahon, a former Air Corp lieutenant colonel, Peter Emerson, a Russian speaker and lecturer in consensus politics, and Eithne MacDermott, a East European studies specialist.
The Irish peacekeepers have travelled on patrol in armoured vehicles up the eastern side of the South Ossetian buffer zone from their field office at Bazaleti.
The EUMM is scheduled to last a year and the Irish representatives are on a four-month stint.
EU monitors began witnessing Russian troops bulldozing checkpoints and withdrawing since earlier this week.
The Irish group were visited by the Irish Ambassador to Georgia, Geoffrey Keating, who also saw the main refugee camp in Gori where 3,000 displaced citizens are waiting to return home. He witnessed the delivery of food donations organised by Irish expat Dr Mike McCarthy and local Irish businessmen.
Mr Keating, also Ambassador to Bulgaria, is based in Sofia. Overall, the Irish people and Government have contributed €250,000 in humanitarian assistance following the recent conflict. "People are now very anxious to get back to their homes and villages and start rebuilding their lives, but they are fearful of militias in both regions," said Dr McCarthy who runs an international medical service from the Georgian capital Tbilisi.
Monday, 6 October 2008
Moscow needs more reforms
The Guardian
Jason Corcoran - Friday October 3, 2008
Comment is Free
Russia may have plentiful foreign currency reserves, but it is one of the biggest losers from the credit crunch
All comments (33)
Invstor panic following Russia's default on its sovereign debt in 1998 led to a stampede by foreign investors to Moscow's Sheremetyevo airport and ultimately delayed the country's integration into the global economy.
Wind the clocks forward a decade and Russia is again in the grips of a deepening financial crisis precipitated by the US banking collapse.
Ten years ago, millions of Russians had their savings wiped out and many of the leading banks disappeared. The government fell on its sword, accepted culpability and went cap in hand to the International Monetary Fund and World Bank.
Today, there are no queues around the block to empty deposit accounts and life is carrying on per usual, apart from grumbles about rising inflation hitting the cost of bread and other staples.
The government is in a different position too as it squats upon $574bn (£325bn) of foreign currency reserves and $175bn in two oil stabilization funds.
Yet Russia has been one of the biggest losers in global markets this summer with stock indices tumbling by over 50% and capital flight leading to an exodus of $57bn since August 8. A rapidly deteriorating financing environment is now showing signs of pricking Moscow's hot property bubble.
This frustration led prime minister Putin on Wednesday to blame US "irresponsibility" for failing to deal with the financial crisis affecting the global economy.
Putin is partly right pinning the blame on the US but can't attribute all of his country's economic woes to the captains of Wall Street. Russian markets have been pistol-whipped by the international credit crisis but also domestically by its five-day war in Georgia, Russo-centric
corpoate flare-ups and Putin's own allegations of price-fixing at miner Mechel.
Putin's outburst at a cabinet meeting reflects the frustration of Russian businessmen who see a disconnect between the financial markets and the fundamentals.
Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector.
Yet domestic stock markets have spiralled downwards and lurched wildly out of synch with global trends. The regulator has had to step in three times during the past fortnight to suspend trading on both Moscow's exchanges.
Putin has responded to the crisis by pledging $150bn of funds to shore up confidence in the banks while the central bank said it would provide loans without collateral.
The credit squeeze has already led Russia's largest broker Renaissance Capital to sell 50% of its shares to billionaire oligarch Mikhail Prokhorov while KIT Finance has ended up in the clutches of Leader, energy giant Gazprom's pension fund manager.
More emergency sales and collapses are likely but a systemic failure of 1998 proportions is out of the question.
While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition.
http://www.guardian.co.uk/commentisfree/2008/oct/03/russia.creditcrunch?showallcomments=true
Selected comments
MartynInEurope
Oct 03 08, 3:12pm
Things are naturally in a state of flux, but significant changes were always gong to be necessary, and I think the likes of Medvedev and Putin probably acknowledge that fact.
Clip | Link andrewwiseman
Oct 03 08, 3:41pm
"One of the biggest losers from the credit crunch"
"Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector."
We should have their problems.
Still, their tanks are probably made of cardboard, right?
Infusoria
Oct 03 08, 5:04pm
Some Russia's problems probably come from trying to copy verbatim rotten western financial institutions and procedures, like stock exchanges and banking. The less Russians participate in stupid Western gambling games and schemes the better it is for Russia, I think. But Russian state development programs look pretty solid at the moment. If things going according to their plans, by 2020 Russia is going to catch up with or overtake EU/US in most areas and improve its infrastructures dramatically. At the same time the West might be getting sucked into a black hole of its own creation (with or without the collider) ;-)
BeatonTheDonis
Oct 03 08, 5:21pm
"While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition."
Yeah, maybe they should go for wholesale deregulation and the mass securitisation of dodgy loans like we did.
It's worked a real treat and has only cost the American tax payer $1trillion, with another $1trillion on the way, and the UK taxpayer £350bn, so far.
Recommend? (10)
Report abuse
Clip | Link UralMan
Oct 03 08, 5:41pm
I would not pay attention to the stock market in the short term. On a larger scale, the Russian market does not look terribly bad, compared, say, to the US. As of now, the Dow Jones trades at 10700. The first time it crossed this level was in April 1999, nearly 10 years ago. The Russian main stock index (RTS$) finished today at 1070, the fist time it reached this level on its way up was in December 2005. Sure, it fell more from its top recently and is more volatile than Dow Jones, but that what you would expect from an emerging market, wouldn't you? Especially for such an overheat economy as Russian one. By the way, about the stock market fall: the RTS$ fell by 57% from its top. Incidentally, the Chinese main stock market fell by nearly 70% from its top. Inconveniently for the author, China has not been involved in any war that can be blamed on :-)
There is very good technical reason for the market collapse in Russia. Practically all the entities in Russia have been borrowing money from banks on a short term notice by pledging shares as collateral. They did not bother thinking of saving money for repaying these loans as, having used to the idea that shares can only go up, meant to sell their collateral at higher prices to repay the loans. Once the market went downturn and banks started to call the borrowers (since the value of collateral in their coffers dropped), the latter started scratching around for cash at any cost, selling any shares they had, further accelerating the fall. The market caught itself in a vicious circle. Everybody knows that the share "A" is intrinsically worth at least $100, but the holder is dumping it at $10 not because he thinks that the company is bad, but because he must repay money to the credit right now. In short, the free market is at work. The initial trigger for this is the loss of confidence in the banking sector and is, indeed, originated from the US. I bet, people in Britain witnessing nationalisation of their banks have similar view. So, do not blame Putin for that.
When it will stop? Who knows. If I knew such things, I would long be the owner of Guardian (I like this paper) rather then its reader. But, what I do know, is that once the technicality sorts itself out and the panic is over, the Russian market will quickly rebound, as many companies remain fundamentally very strong and have net assets well in excess of the value suggested by the shares. And when it happens, I would be extremely interested to read what Jason Corcoran's explanation for that would be :-)
Jason Corcoran - Friday October 3, 2008
Comment is Free
Russia may have plentiful foreign currency reserves, but it is one of the biggest losers from the credit crunch
All comments (33)
Invstor panic following Russia's default on its sovereign debt in 1998 led to a stampede by foreign investors to Moscow's Sheremetyevo airport and ultimately delayed the country's integration into the global economy.
Wind the clocks forward a decade and Russia is again in the grips of a deepening financial crisis precipitated by the US banking collapse.
Ten years ago, millions of Russians had their savings wiped out and many of the leading banks disappeared. The government fell on its sword, accepted culpability and went cap in hand to the International Monetary Fund and World Bank.
Today, there are no queues around the block to empty deposit accounts and life is carrying on per usual, apart from grumbles about rising inflation hitting the cost of bread and other staples.
The government is in a different position too as it squats upon $574bn (£325bn) of foreign currency reserves and $175bn in two oil stabilization funds.
Yet Russia has been one of the biggest losers in global markets this summer with stock indices tumbling by over 50% and capital flight leading to an exodus of $57bn since August 8. A rapidly deteriorating financing environment is now showing signs of pricking Moscow's hot property bubble.
This frustration led prime minister Putin on Wednesday to blame US "irresponsibility" for failing to deal with the financial crisis affecting the global economy.
Putin is partly right pinning the blame on the US but can't attribute all of his country's economic woes to the captains of Wall Street. Russian markets have been pistol-whipped by the international credit crisis but also domestically by its five-day war in Georgia, Russo-centric
corpoate flare-ups and Putin's own allegations of price-fixing at miner Mechel.
Putin's outburst at a cabinet meeting reflects the frustration of Russian businessmen who see a disconnect between the financial markets and the fundamentals.
Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector.
Yet domestic stock markets have spiralled downwards and lurched wildly out of synch with global trends. The regulator has had to step in three times during the past fortnight to suspend trading on both Moscow's exchanges.
Putin has responded to the crisis by pledging $150bn of funds to shore up confidence in the banks while the central bank said it would provide loans without collateral.
The credit squeeze has already led Russia's largest broker Renaissance Capital to sell 50% of its shares to billionaire oligarch Mikhail Prokhorov while KIT Finance has ended up in the clutches of Leader, energy giant Gazprom's pension fund manager.
More emergency sales and collapses are likely but a systemic failure of 1998 proportions is out of the question.
While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition.
http://www.guardian.co.uk/commentisfree/2008/oct/03/russia.creditcrunch?showallcomments=true
Selected comments
MartynInEurope
Oct 03 08, 3:12pm
Things are naturally in a state of flux, but significant changes were always gong to be necessary, and I think the likes of Medvedev and Putin probably acknowledge that fact.
Clip | Link andrewwiseman
Oct 03 08, 3:41pm
"One of the biggest losers from the credit crunch"
"Russia has a growth rate of 7.6%, a huge current account surplus, a budget surplus from high commodity prices and a booming consumer sector."
We should have their problems.
Still, their tanks are probably made of cardboard, right?
Infusoria
Oct 03 08, 5:04pm
Some Russia's problems probably come from trying to copy verbatim rotten western financial institutions and procedures, like stock exchanges and banking. The less Russians participate in stupid Western gambling games and schemes the better it is for Russia, I think. But Russian state development programs look pretty solid at the moment. If things going according to their plans, by 2020 Russia is going to catch up with or overtake EU/US in most areas and improve its infrastructures dramatically. At the same time the West might be getting sucked into a black hole of its own creation (with or without the collider) ;-)
BeatonTheDonis
Oct 03 08, 5:21pm
"While the credibility of transforming Moscow into a financial hub to rival London, New York or Frankfurt has been dented by recent trials and tribulations, it could provide the wake-up call for wholesale reform of institutions and pensions needed to match that ambition."
Yeah, maybe they should go for wholesale deregulation and the mass securitisation of dodgy loans like we did.
It's worked a real treat and has only cost the American tax payer $1trillion, with another $1trillion on the way, and the UK taxpayer £350bn, so far.
Recommend? (10)
Report abuse
Clip | Link UralMan
Oct 03 08, 5:41pm
I would not pay attention to the stock market in the short term. On a larger scale, the Russian market does not look terribly bad, compared, say, to the US. As of now, the Dow Jones trades at 10700. The first time it crossed this level was in April 1999, nearly 10 years ago. The Russian main stock index (RTS$) finished today at 1070, the fist time it reached this level on its way up was in December 2005. Sure, it fell more from its top recently and is more volatile than Dow Jones, but that what you would expect from an emerging market, wouldn't you? Especially for such an overheat economy as Russian one. By the way, about the stock market fall: the RTS$ fell by 57% from its top. Incidentally, the Chinese main stock market fell by nearly 70% from its top. Inconveniently for the author, China has not been involved in any war that can be blamed on :-)
There is very good technical reason for the market collapse in Russia. Practically all the entities in Russia have been borrowing money from banks on a short term notice by pledging shares as collateral. They did not bother thinking of saving money for repaying these loans as, having used to the idea that shares can only go up, meant to sell their collateral at higher prices to repay the loans. Once the market went downturn and banks started to call the borrowers (since the value of collateral in their coffers dropped), the latter started scratching around for cash at any cost, selling any shares they had, further accelerating the fall. The market caught itself in a vicious circle. Everybody knows that the share "A" is intrinsically worth at least $100, but the holder is dumping it at $10 not because he thinks that the company is bad, but because he must repay money to the credit right now. In short, the free market is at work. The initial trigger for this is the loss of confidence in the banking sector and is, indeed, originated from the US. I bet, people in Britain witnessing nationalisation of their banks have similar view. So, do not blame Putin for that.
When it will stop? Who knows. If I knew such things, I would long be the owner of Guardian (I like this paper) rather then its reader. But, what I do know, is that once the technicality sorts itself out and the panic is over, the Russian market will quickly rebound, as many companies remain fundamentally very strong and have net assets well in excess of the value suggested by the shares. And when it happens, I would be extremely interested to read what Jason Corcoran's explanation for that would be :-)
Russian billionaires hit by property slump
Wealth Bulletin
3 October 2008 - Jason Corcoran in Moscow
Russian billionaire owners of real estate developers are likely to be among the worst-hit as a deteriorating financing environment pricks a bubble in Moscow's hot property market.
Ratings agency Fitch said Russian developers were dangerously exposed to the crisis because of a large share of short-term debt in their liquidity profiles, significant operational cash outflows as well as limited cash-on-balance sheet
Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that Mirax is likely to undertake something similar highlight a real deterioration in the funding environment for Russian developers.
Sistema Hals is the listed property arm of the conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.
Mirax, Sistema Hals and Inteko headed by Russia's richest woman Yelena Baturina has already announced freezes on new and ongoing projects over the next year, according to reports in the Russian press.
Sistema-Hals is planning to sell nearly one-quarter of its development assets to shore up accounts and repay debts, which currently total $1.2bn, or 34% of the value, according to Kommersant.
Julian Crush, senior director at Fitch said: "At a time when the Russian government has had to intervene to support domestic financial institutions and with increasing question marks over the ability and appetite of all but the largest Russian domestic banks to maintain current funding levels to the real estate sector, liquidity risks associated with Russian property developers have never been higher."
Open Investment, Russia's second largest listed developer, has fallen by 52% this year while LSR Group, the Russian developer and building-materials maker controlled by billionaire Andrei Molchanov, has dropped by 64%.
Much focus has been on PIK where Kirill Pisarev and Yuri Zhukov, the main executives at listed property developer PIK have registered paper losses of over $2.2bn each, according to US publication Forbes. PIK's share price has fallen by 78% since its IPO in June 2007.
In its latest results announcement on Tuesday, PIK said it is due to repay $900m over the next six months and it will use $400m of its own cash and $200m from banks but still needs to find $300m.
However, analyst Barry Schumaker at UralSib, sounded a note of optimism for PIK's outlook.
In a note, Schumaker said: "PIK's four-month 90% share price collapse is undeserved and is related to the company's short-term liquidity issue and expectations of a weakening residential market. We reiterate our Buy recommendation and target price of $33/share."
Russia's richest man Oleg Deripaska, with Forbes estimated fortune of $16bn, has much of his money tied up in property and construction interests, such as the emerging business district of Moscow City, along with stakes in Austrian builder Strabag and Canadian auto-parts maker Magna, which he is selling to creditors.
A report in the Daily Telegraph on Wednesday said the oligarch had sacked all his domestic staff in his vast Moscow estate last week and replaced them with cheap labour from a provincial town.
The same report cited Alexander Lebedev – one of Russia’s richest men – who admitted to having lost two thirds of his £1.7bn fortune since the market crisis commenced.
3 October 2008 - Jason Corcoran in Moscow
Russian billionaire owners of real estate developers are likely to be among the worst-hit as a deteriorating financing environment pricks a bubble in Moscow's hot property market.
Ratings agency Fitch said Russian developers were dangerously exposed to the crisis because of a large share of short-term debt in their liquidity profiles, significant operational cash outflows as well as limited cash-on-balance sheet
Fitch said reports that Sistema-Hals is likely to sell almost a quarter of its projects to raise up to $500m of cash and that Mirax is likely to undertake something similar highlight a real deterioration in the funding environment for Russian developers.
Sistema Hals is the listed property arm of the conglomerate Sistema, headed by oligarch Vladimir Evtushenkov, while Mirax is owned by billionaire Sergei Polonsky.
Mirax, Sistema Hals and Inteko headed by Russia's richest woman Yelena Baturina has already announced freezes on new and ongoing projects over the next year, according to reports in the Russian press.
Sistema-Hals is planning to sell nearly one-quarter of its development assets to shore up accounts and repay debts, which currently total $1.2bn, or 34% of the value, according to Kommersant.
Julian Crush, senior director at Fitch said: "At a time when the Russian government has had to intervene to support domestic financial institutions and with increasing question marks over the ability and appetite of all but the largest Russian domestic banks to maintain current funding levels to the real estate sector, liquidity risks associated with Russian property developers have never been higher."
Open Investment, Russia's second largest listed developer, has fallen by 52% this year while LSR Group, the Russian developer and building-materials maker controlled by billionaire Andrei Molchanov, has dropped by 64%.
Much focus has been on PIK where Kirill Pisarev and Yuri Zhukov, the main executives at listed property developer PIK have registered paper losses of over $2.2bn each, according to US publication Forbes. PIK's share price has fallen by 78% since its IPO in June 2007.
In its latest results announcement on Tuesday, PIK said it is due to repay $900m over the next six months and it will use $400m of its own cash and $200m from banks but still needs to find $300m.
However, analyst Barry Schumaker at UralSib, sounded a note of optimism for PIK's outlook.
In a note, Schumaker said: "PIK's four-month 90% share price collapse is undeserved and is related to the company's short-term liquidity issue and expectations of a weakening residential market. We reiterate our Buy recommendation and target price of $33/share."
Russia's richest man Oleg Deripaska, with Forbes estimated fortune of $16bn, has much of his money tied up in property and construction interests, such as the emerging business district of Moscow City, along with stakes in Austrian builder Strabag and Canadian auto-parts maker Magna, which he is selling to creditors.
A report in the Daily Telegraph on Wednesday said the oligarch had sacked all his domestic staff in his vast Moscow estate last week and replaced them with cheap labour from a provincial town.
The same report cited Alexander Lebedev – one of Russia’s richest men – who admitted to having lost two thirds of his £1.7bn fortune since the market crisis commenced.
Thursday, 25 September 2008
Renaissance man says deal crucial for new investment banking era
Business New Europe
Jason Corcoran in Moscow
September 25, 2008
The experience of enduring Russia's last financial crisis in 1998 was burned into the psyche of Stephen Jennings when he opted on September 22 to sell half of his investment bank Renaissance Capital to billionaire oligarch Mikhail Prokhorov.
Forsaking the bank's treasured independence was a tough call for its chief executive, but better than facing the prospect of teetering towards extinction as it did in 1998 when the Russian government's default reduced Renaissance to a shell and forced Jennings to slash the headcount to 190 staff, from 650.
"We have a large shareholder base, a great team in place and 1,500 employees in the bank. We could have run the gauntlet and I think we would have made it, but we didn't know what was going to happen when we were looking at an environment where Goldman Sachs and Morgan Stanley couldn't make it as investment banks. I wasn't prepared to take the chance," Jennings told bne in an interview.
Renaissance's deal to sell a 50% stake for $500m to Prokhorov's investment vehicle Onexim comes as the capital markets landscape is being redrawn globally. Jennings watched the collapse of Lehman Brothers, the sale of Merrill Lynch and Dresdner Kleinwort, and the conversion of Goldman Sachs and Morgan Stanley into commercial banking entities, and knew he had to act fast. "If we had of gone into a reorganisation, you would have lost a huge amount of intrinsic value and you would have lost a huge amount of your team," he explained. "There would have been huge reputational issues and credibility damage too."
Lehman, Merrill, Dresdner, Goldman Sachs and Morgan Stanley all have substantial operations in Moscow and are competitors of Renaissance in equity capital markets and M&A advisory mandates. Jennings and his team have been raiding the bulge bracket banks for talent for two years and are expected to cherry pick their best staff now financing and credit lines have been secured from Prokhorov. "People here at Rencap are very excited," said Jennings. "The banking model we have designed is for a new world. We now have the biggest balance sheet of any investment bank in the world backed by an incredibly strong and powerful shareholder."
Few doubt that the domestic markets' spiral downward also played its part in the sale. The domestic brokerage sector has been reeling from the steepest declines in the markets seen since the 1998 crisis and led to the closure of Russia's main markets for two days last week. However, Jennings insists Renaissance didn't incur any losses due to other banks and brokerages failing to make their payments. He said the bank's exposure to Lehman was less than $2m, while its exposure to KIT Finance was zero. Mid-tier KIT is being sold to Leader Asset Management, energy giant Gazprom's pension fund manager, while another local outfit Antanta Capital said it's selling its investment arm and brokerage units.
More ominously, Renaissance's main Russian competitor, Troika Dialog, has been the subject of fevered speculation and issued a statement on September 25 denying it would be taken over by the country's giant savings bank Sberbank. Troika is run by Ruben Vardanian, who is believed to be on a business trip to China and Singapore, where the bank has close ties with Temasek, the sovereign wealth fund. "Sberbank was then and we moved on now to somewhere else," a source close to Troika told bne.
According to Jennings, suitors who ran the slide rule over Renaissance numbered 25. This number included oligarchs, western banks and state-controlled institutions, some of which have been eying Renaissance for sometime. The UK bank HSBC was said to have been close to taking a 10% stake a year ago for $300m, while state-controlled VTB, which has just recently launched its own investment banking division, is widely reported to have valued Renaissance at $3bn-$4bn.
However, Jennings, who worked for Credit Suisse First Boston in the 1980s advising the New Zealand and Australian governments on privatization and state enterprise restructuring, is sceptical of the state banks' ability to compete in investment banking. As well as VTB, Sberbank and Gazprombank are also reported to be plotting their own launches of investment banks. "State investment banks have never worked been successful in the past and I don't see a Russian one working," Jennings said. "Their culture and sentiment is not suited."
Jennings is full of admiration for Prokhorov's business aptitude and pointed out how he was the sole advisor on the sale of his own 25% stake in Norilsk Nickel to fellow oligarch Oleg Deripaska. "He [Prokhorov] is very bright and he's a very good partner for us. In today's market, you need a powerful Russian shareholder. We had two options to sell out to a state bank or to an oligarch. The state bank route would have been a complete mismatch for us and neither would the market have liked us," Jennings said.
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Jason Corcoran in Moscow
September 25, 2008
The experience of enduring Russia's last financial crisis in 1998 was burned into the psyche of Stephen Jennings when he opted on September 22 to sell half of his investment bank Renaissance Capital to billionaire oligarch Mikhail Prokhorov.
Forsaking the bank's treasured independence was a tough call for its chief executive, but better than facing the prospect of teetering towards extinction as it did in 1998 when the Russian government's default reduced Renaissance to a shell and forced Jennings to slash the headcount to 190 staff, from 650.
"We have a large shareholder base, a great team in place and 1,500 employees in the bank. We could have run the gauntlet and I think we would have made it, but we didn't know what was going to happen when we were looking at an environment where Goldman Sachs and Morgan Stanley couldn't make it as investment banks. I wasn't prepared to take the chance," Jennings told bne in an interview.
Renaissance's deal to sell a 50% stake for $500m to Prokhorov's investment vehicle Onexim comes as the capital markets landscape is being redrawn globally. Jennings watched the collapse of Lehman Brothers, the sale of Merrill Lynch and Dresdner Kleinwort, and the conversion of Goldman Sachs and Morgan Stanley into commercial banking entities, and knew he had to act fast. "If we had of gone into a reorganisation, you would have lost a huge amount of intrinsic value and you would have lost a huge amount of your team," he explained. "There would have been huge reputational issues and credibility damage too."
Lehman, Merrill, Dresdner, Goldman Sachs and Morgan Stanley all have substantial operations in Moscow and are competitors of Renaissance in equity capital markets and M&A advisory mandates. Jennings and his team have been raiding the bulge bracket banks for talent for two years and are expected to cherry pick their best staff now financing and credit lines have been secured from Prokhorov. "People here at Rencap are very excited," said Jennings. "The banking model we have designed is for a new world. We now have the biggest balance sheet of any investment bank in the world backed by an incredibly strong and powerful shareholder."
Few doubt that the domestic markets' spiral downward also played its part in the sale. The domestic brokerage sector has been reeling from the steepest declines in the markets seen since the 1998 crisis and led to the closure of Russia's main markets for two days last week. However, Jennings insists Renaissance didn't incur any losses due to other banks and brokerages failing to make their payments. He said the bank's exposure to Lehman was less than $2m, while its exposure to KIT Finance was zero. Mid-tier KIT is being sold to Leader Asset Management, energy giant Gazprom's pension fund manager, while another local outfit Antanta Capital said it's selling its investment arm and brokerage units.
More ominously, Renaissance's main Russian competitor, Troika Dialog, has been the subject of fevered speculation and issued a statement on September 25 denying it would be taken over by the country's giant savings bank Sberbank. Troika is run by Ruben Vardanian, who is believed to be on a business trip to China and Singapore, where the bank has close ties with Temasek, the sovereign wealth fund. "Sberbank was then and we moved on now to somewhere else," a source close to Troika told bne.
According to Jennings, suitors who ran the slide rule over Renaissance numbered 25. This number included oligarchs, western banks and state-controlled institutions, some of which have been eying Renaissance for sometime. The UK bank HSBC was said to have been close to taking a 10% stake a year ago for $300m, while state-controlled VTB, which has just recently launched its own investment banking division, is widely reported to have valued Renaissance at $3bn-$4bn.
However, Jennings, who worked for Credit Suisse First Boston in the 1980s advising the New Zealand and Australian governments on privatization and state enterprise restructuring, is sceptical of the state banks' ability to compete in investment banking. As well as VTB, Sberbank and Gazprombank are also reported to be plotting their own launches of investment banks. "State investment banks have never worked been successful in the past and I don't see a Russian one working," Jennings said. "Their culture and sentiment is not suited."
Jennings is full of admiration for Prokhorov's business aptitude and pointed out how he was the sole advisor on the sale of his own 25% stake in Norilsk Nickel to fellow oligarch Oleg Deripaska. "He [Prokhorov] is very bright and he's a very good partner for us. In today's market, you need a powerful Russian shareholder. We had two options to sell out to a state bank or to an oligarch. The state bank route would have been a complete mismatch for us and neither would the market have liked us," Jennings said.
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Russian oligarchs suffer $42bn losses
Wealth Bulletin
25 September 2008 - Jason Corcoran in Moscow
Russian oligarchs are nursing paper losses of $42bn (€28.6bn) from the dramatic sell-off in the Russian stock markets over the past two months.
US publication Forbes calculated the net worth of Russia's richest businessmen last week and compared it to the end of July when widespread market falls were triggered by Prime Minister Putin's accusations of price fixing at miner Mechel.
The Russian stock markets have since fallen 50% as the international banking crisis, falling commodity prices and the war with Georgia has taken its toll.
The greatest losses were suffered by Vladimir Lisin, the steel magnate owner Novolipetsk Steel, who saw his portfolio holdings drop by $11.2bn since the end of July.
The next biggest loser has been chairman of mineral fertiliser company Uralkali Dmitry Rybolovlev who has stacked up market losses of $7.3bn.
Vagit Alekperov, president and one of the biggest shareholders in oil major Lukoil, has seen $5.13bn come off his total net worth of $14.3bn.
Alexei Mordashov, chairman of steel giant Severstal, has shed $4.49bn from his net worth of $24.5bn over the past two months while Arsenal football club shareholder Alisher Usmanov has lost just $1.25bn of his $9.5bn net worth.
Kirill Pisarev and Yuri Zhukov, executives at listed property developer PIK have each lost over $2.2bn, according to Forbes.
25 September 2008 - Jason Corcoran in Moscow
Russian oligarchs are nursing paper losses of $42bn (€28.6bn) from the dramatic sell-off in the Russian stock markets over the past two months.
US publication Forbes calculated the net worth of Russia's richest businessmen last week and compared it to the end of July when widespread market falls were triggered by Prime Minister Putin's accusations of price fixing at miner Mechel.
The Russian stock markets have since fallen 50% as the international banking crisis, falling commodity prices and the war with Georgia has taken its toll.
The greatest losses were suffered by Vladimir Lisin, the steel magnate owner Novolipetsk Steel, who saw his portfolio holdings drop by $11.2bn since the end of July.
The next biggest loser has been chairman of mineral fertiliser company Uralkali Dmitry Rybolovlev who has stacked up market losses of $7.3bn.
Vagit Alekperov, president and one of the biggest shareholders in oil major Lukoil, has seen $5.13bn come off his total net worth of $14.3bn.
Alexei Mordashov, chairman of steel giant Severstal, has shed $4.49bn from his net worth of $24.5bn over the past two months while Arsenal football club shareholder Alisher Usmanov has lost just $1.25bn of his $9.5bn net worth.
Kirill Pisarev and Yuri Zhukov, executives at listed property developer PIK have each lost over $2.2bn, according to Forbes.
Monday, 22 September 2008
Rencap sells 50% stake to billionaire Prokhorov
Financial News Online
Jason Corcoran in Moscow
22 September 2008
Russian investment bank Renaissance Capital has given up its much vaunted independence after selling a 50% stake to billionaire client Mikhail Prokhorov for $500m (€342m) amid the worst market falls in Moscow since the 1998 financial crisis.
Renaissance and the Onexim investment vehicle owned by Prokhorov, who made his money from metals and banking, will buy new equity amounting to 50% of the brokerage for $500m, with the old shareholders retaining a one-share voting majority.
The deal follows a week when market turmoil drove domestic indices down by 25% in just three days and forced another brokerage KIT Finance to agree to sell a controlling stake Leader Asset Management, the pension fund manager of energy giant Gazprom.
A Moscow spokesman for Renaissance said the deal had been in the pipeline for months but had been accelerated due to recent market conditions. "Events in the market moved the negotiations along."
A hastily arranged press conference featuring Prokhorov and Renaissance founder Stephen Jennings was organised at the Ritz hotel in Central Moscow.
Prokhorov said at the press conference: "We've been negotiating for several months. The problems of the global economy sped up the talks... Together with our partners we are ready for major expansion," including in Western markets.
Renaissance said it had not suffered any writedowns or losses due to the markets.
One Russian financier expressed surprise that Renaissance had sold so cheaply. "The market has hit everyone but I thought Rencap would fetch more. Bankers were putting the value of the investment bank at $3-4bn a year ago," the financier said.
Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, had previously rebuffed interest in the business from western banks and state-controlled VTB Bank.
In an interview with Financial News a year ago, he said selling out, as rival brokerages Brunswick and UFG have, would ruin Rencap's reputation for providing clients with impartial and independent services.
He said: "It would be very damaging and what you sold would be slightly damaged by the time you sold it. By virtue of the sale process, you would lose something. We have seen that has happened in the market here."
In a statement today, Jennings said: "The partnership with Onexim creates a financial powerhouse with the resources, skills and ambition to be the clear leader in all its markets. At a time when many of our competitors are weakened, our unique franchise, solid capital platform and highly motivated staff will enable the firm to aggressively pursue growth opportunities."
Renaissance Group's other asset management, private equity and consumer finance arms are not part of the sale.
Onexim is one of Russia's largest private investment funds, with a focus on mining industry, innovative projects in energy and nanotechnology, real estate and other industries. It has more than $25bn in assets.
Prokhorov was joint owner of mining giant Norilsk Nickel alongside Vladimir Potanin until a very public business divorce led him to sold most of this stake to tycoon Oleg Deripasksa earlier this year.
Renaissance advised Onexim last year on the exchange of its 25% stake in Norlisk Nickel with Deripaska.
A Rencap source said the bank's independence would not be damaged by selling to Prokhorov's group. "Onexim is not Gazprom or the Kremlin. It's an independent investment vehicle."
Onexim will contribute to the strategic direction of the investment bank and will be able to nominate three of the seven board members of Renaissance Capital.
Renaissance Capital was created in 1995 by New Zealander Jennings and American Boris Jordan, who left top positions at the Russian division of Credit Suisse First Boston to establish their own business. Jennings is believed to own an 80% stake in the business.
Following Russian default on its sovereign debt and the economic crisis in 1998, Jennings bought out three other shareholders, Leonid Rozhetskin, Richard Ditz, and Anton Kudryashov, and took sole charge when Jordan left.
In the past two years, Jennings had led the bank's rapid expansion to set up in new frontier markets in Sub-Saharan Africa and Central Asia.
www.efinancialnews.com
Jason Corcoran in Moscow
22 September 2008
Russian investment bank Renaissance Capital has given up its much vaunted independence after selling a 50% stake to billionaire client Mikhail Prokhorov for $500m (€342m) amid the worst market falls in Moscow since the 1998 financial crisis.
Renaissance and the Onexim investment vehicle owned by Prokhorov, who made his money from metals and banking, will buy new equity amounting to 50% of the brokerage for $500m, with the old shareholders retaining a one-share voting majority.
The deal follows a week when market turmoil drove domestic indices down by 25% in just three days and forced another brokerage KIT Finance to agree to sell a controlling stake Leader Asset Management, the pension fund manager of energy giant Gazprom.
A Moscow spokesman for Renaissance said the deal had been in the pipeline for months but had been accelerated due to recent market conditions. "Events in the market moved the negotiations along."
A hastily arranged press conference featuring Prokhorov and Renaissance founder Stephen Jennings was organised at the Ritz hotel in Central Moscow.
Prokhorov said at the press conference: "We've been negotiating for several months. The problems of the global economy sped up the talks... Together with our partners we are ready for major expansion," including in Western markets.
Renaissance said it had not suffered any writedowns or losses due to the markets.
One Russian financier expressed surprise that Renaissance had sold so cheaply. "The market has hit everyone but I thought Rencap would fetch more. Bankers were putting the value of the investment bank at $3-4bn a year ago," the financier said.
Jennings, who set up Rencap in 1995 with a Credit Suisse colleague Boris Jordan, had previously rebuffed interest in the business from western banks and state-controlled VTB Bank.
In an interview with Financial News a year ago, he said selling out, as rival brokerages Brunswick and UFG have, would ruin Rencap's reputation for providing clients with impartial and independent services.
He said: "It would be very damaging and what you sold would be slightly damaged by the time you sold it. By virtue of the sale process, you would lose something. We have seen that has happened in the market here."
In a statement today, Jennings said: "The partnership with Onexim creates a financial powerhouse with the resources, skills and ambition to be the clear leader in all its markets. At a time when many of our competitors are weakened, our unique franchise, solid capital platform and highly motivated staff will enable the firm to aggressively pursue growth opportunities."
Renaissance Group's other asset management, private equity and consumer finance arms are not part of the sale.
Onexim is one of Russia's largest private investment funds, with a focus on mining industry, innovative projects in energy and nanotechnology, real estate and other industries. It has more than $25bn in assets.
Prokhorov was joint owner of mining giant Norilsk Nickel alongside Vladimir Potanin until a very public business divorce led him to sold most of this stake to tycoon Oleg Deripasksa earlier this year.
Renaissance advised Onexim last year on the exchange of its 25% stake in Norlisk Nickel with Deripaska.
A Rencap source said the bank's independence would not be damaged by selling to Prokhorov's group. "Onexim is not Gazprom or the Kremlin. It's an independent investment vehicle."
Onexim will contribute to the strategic direction of the investment bank and will be able to nominate three of the seven board members of Renaissance Capital.
Renaissance Capital was created in 1995 by New Zealander Jennings and American Boris Jordan, who left top positions at the Russian division of Credit Suisse First Boston to establish their own business. Jennings is believed to own an 80% stake in the business.
Following Russian default on its sovereign debt and the economic crisis in 1998, Jennings bought out three other shareholders, Leonid Rozhetskin, Richard Ditz, and Anton Kudryashov, and took sole charge when Jordan left.
In the past two years, Jennings had led the bank's rapid expansion to set up in new frontier markets in Sub-Saharan Africa and Central Asia.
www.efinancialnews.com
Thursday, 18 September 2008
Gazprom steps in to save KIT Finance
Financial News Online
Jason Corcoran in Moscow
18 September 2008
Energy giant Gazprom's pension fund manager Leader is close to buying up troubled Russian brokerage KIT Finance as the government drew up a "red list" of 15 banks requiring urgent capital injections.
In a statement late on Wednesday night, KIT said it was in the final stages of selling a controlling stake to Leader Asset Management with credit support from state-controlled banks Gazprombank and VTB.
The rescue of KIT comes as Moscow's stock markets were suspended for the second day in a row and as the state pledged $60bn (€41.9bn) to save banks as a spreading liquidity crisis threatened to push the sector into insolvency.
Minister for Finance Alexei Kudrin told Russian media several banks were have difficulties with meeting their obligations and were now holding talks with strategic investors.
KIT, a second tier investment bank, was forced to look for a buyer or investors after defaulting on its debt as analysts suggested a number of small to medium-sized bank are facing similar difficulties refinancing on the repo market.
A statement from KIT said: "These timely measures to support the Russian financial system were taken by the Government and the Central Bank of the Russian Federation in order to provide stability to KIT Finance s operations as an important participant in the market."
Following an emergency Government meeting yesterday, the Finance Ministry promised 1.5 trillion roubles ($60bn) would be made available to bail out local banks.
According to a report in today's Kommersant, the Russian Central Bank has drawn up "red list" of the 15 banks that are experiencing the most serious problems with obligations to counter parties and are in need of urgent financial assistance.
The Central Bank responded to the crisis by cutting its reserve requirements by 400 basis points, which is expected to inject 300bn roubles ($12bn) into the banking system as of today. Deputy chairman Konstantin Korishenko put the total amount that the bank could make available through repo auctions and the auctions of unspent government funds at $118bn.
Analysts said KIT's problems were contagious and the state would have to intervene quickly to restore liquidity and confidence in the market.
David Nangle, director of financial research at Renaissance Capital, said: "There are other banks and boutiques with exposure to repos whereby their clients are not repaying back their debt in time. There is a risk that there are more KITs in the system unless this can be contained."
Under repo agreements, KIT advances credit to clients with stock being offered collateral. A number of clients failed to meet their liabilities which resulted in KIT not meeting their own liabilities with some of their counteragents.
Discussions over KIT's future came as Russia RTS and MICEX stock exchanges both halted trading at about 12:10 yesterday as the Ministry of Finance rushed to provide loans to the country's banking system.
Trading was stopped on the dollar-denominated RTS on the orders of a government agency after sliding 6.39% in the first two hours. The index has shorn 57% since May, while the Micex was also halted after falling 3%.
Financial stocks were worst hit with VTB spiralling down by 28% while most blue chips, such as Rosneft, Novatek, Gazprom, AFI, Surgutneftegaz, fell by about 20%.
Traders said rumours of banking bankruptcies were rife and they were trying to reassure international investors.
One Moscow trader: "Investors are ringing us and we are trying to keep them calm. All we can do now is focus on the GDR prices of Russian stocks in New York and London until the local markets get running again."
Ivan Ivanchenko, head of investment strategic at VTB, dismissed reports in the Russian press that the state-controlled back was stepping in to acquire KIT.
He said: "We are holding a lot of cash on our balance sheet and we feel comfortable in this position. That's not to say we are buying KIT but we don't exclude an acquisition at a later stage.
Ivanchenko said confidence in the market had evaporated yesterday and small brokers had unwound all their positions.
Analysts agreed that the leading state banks and top-tier investment banks such as Troika Dialog and Renaissance were well capitalised and would not be affected.
With KIT Finance in trouble, and liquidity drying up, Finance Minister Kudrin is depending on VTB and its fellow state banks Sberbank Gazprombank to shore up the system.
Kudrin says Russia's three biggest banks, of which Sberbank and VTB are state-controlled, should be able to support the country's medium and smaller banks by virtue of their broader access to budget funds.
In a statement to state press agency Intefax, Kudrin said: "Essentially we're counting on them as core banks to be able to lend to small and medium banks."
To strengthen the three largest banks, the Finance Ministry said it was allowing them to hold federal budget funds on deposit for terms of three months and more.
A government press release described the banks as "linchpins able to provide liquidity in the banking system," said budget funds available to the banks has been increased to 754.2bn rubles (€20bn) for Sberbank, 268.5bn rubles for VTB and 103.9bn rubles for Gazprombank, totalling 1.1266 trillion rubles.
KIT has grown rapidly in the past 18 months due to success of its mergers and acquisitions team in the utility sector.
The bank, which has its origins in St Petersburg, was previously a top fiver mortgage lender and also has a joint asset management venture with Beneleux bank Fortis. It was planning an IPO at the end of this year, or the start of next year.
www.efinancialnews.com
Jason Corcoran in Moscow
18 September 2008
Energy giant Gazprom's pension fund manager Leader is close to buying up troubled Russian brokerage KIT Finance as the government drew up a "red list" of 15 banks requiring urgent capital injections.
In a statement late on Wednesday night, KIT said it was in the final stages of selling a controlling stake to Leader Asset Management with credit support from state-controlled banks Gazprombank and VTB.
The rescue of KIT comes as Moscow's stock markets were suspended for the second day in a row and as the state pledged $60bn (€41.9bn) to save banks as a spreading liquidity crisis threatened to push the sector into insolvency.
Minister for Finance Alexei Kudrin told Russian media several banks were have difficulties with meeting their obligations and were now holding talks with strategic investors.
KIT, a second tier investment bank, was forced to look for a buyer or investors after defaulting on its debt as analysts suggested a number of small to medium-sized bank are facing similar difficulties refinancing on the repo market.
A statement from KIT said: "These timely measures to support the Russian financial system were taken by the Government and the Central Bank of the Russian Federation in order to provide stability to KIT Finance s operations as an important participant in the market."
Following an emergency Government meeting yesterday, the Finance Ministry promised 1.5 trillion roubles ($60bn) would be made available to bail out local banks.
According to a report in today's Kommersant, the Russian Central Bank has drawn up "red list" of the 15 banks that are experiencing the most serious problems with obligations to counter parties and are in need of urgent financial assistance.
The Central Bank responded to the crisis by cutting its reserve requirements by 400 basis points, which is expected to inject 300bn roubles ($12bn) into the banking system as of today. Deputy chairman Konstantin Korishenko put the total amount that the bank could make available through repo auctions and the auctions of unspent government funds at $118bn.
Analysts said KIT's problems were contagious and the state would have to intervene quickly to restore liquidity and confidence in the market.
David Nangle, director of financial research at Renaissance Capital, said: "There are other banks and boutiques with exposure to repos whereby their clients are not repaying back their debt in time. There is a risk that there are more KITs in the system unless this can be contained."
Under repo agreements, KIT advances credit to clients with stock being offered collateral. A number of clients failed to meet their liabilities which resulted in KIT not meeting their own liabilities with some of their counteragents.
Discussions over KIT's future came as Russia RTS and MICEX stock exchanges both halted trading at about 12:10 yesterday as the Ministry of Finance rushed to provide loans to the country's banking system.
Trading was stopped on the dollar-denominated RTS on the orders of a government agency after sliding 6.39% in the first two hours. The index has shorn 57% since May, while the Micex was also halted after falling 3%.
Financial stocks were worst hit with VTB spiralling down by 28% while most blue chips, such as Rosneft, Novatek, Gazprom, AFI, Surgutneftegaz, fell by about 20%.
Traders said rumours of banking bankruptcies were rife and they were trying to reassure international investors.
One Moscow trader: "Investors are ringing us and we are trying to keep them calm. All we can do now is focus on the GDR prices of Russian stocks in New York and London until the local markets get running again."
Ivan Ivanchenko, head of investment strategic at VTB, dismissed reports in the Russian press that the state-controlled back was stepping in to acquire KIT.
He said: "We are holding a lot of cash on our balance sheet and we feel comfortable in this position. That's not to say we are buying KIT but we don't exclude an acquisition at a later stage.
Ivanchenko said confidence in the market had evaporated yesterday and small brokers had unwound all their positions.
Analysts agreed that the leading state banks and top-tier investment banks such as Troika Dialog and Renaissance were well capitalised and would not be affected.
With KIT Finance in trouble, and liquidity drying up, Finance Minister Kudrin is depending on VTB and its fellow state banks Sberbank Gazprombank to shore up the system.
Kudrin says Russia's three biggest banks, of which Sberbank and VTB are state-controlled, should be able to support the country's medium and smaller banks by virtue of their broader access to budget funds.
In a statement to state press agency Intefax, Kudrin said: "Essentially we're counting on them as core banks to be able to lend to small and medium banks."
To strengthen the three largest banks, the Finance Ministry said it was allowing them to hold federal budget funds on deposit for terms of three months and more.
A government press release described the banks as "linchpins able to provide liquidity in the banking system," said budget funds available to the banks has been increased to 754.2bn rubles (€20bn) for Sberbank, 268.5bn rubles for VTB and 103.9bn rubles for Gazprombank, totalling 1.1266 trillion rubles.
KIT has grown rapidly in the past 18 months due to success of its mergers and acquisitions team in the utility sector.
The bank, which has its origins in St Petersburg, was previously a top fiver mortgage lender and also has a joint asset management venture with Beneleux bank Fortis. It was planning an IPO at the end of this year, or the start of next year.
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