UK banks splash out for Russian mission

Financial News

By Jason Corcoran

15 June 2009

Letter from Moscow

The opening last week of HSBC Bank’s first branches in central Moscow heralds a new British retail invasion of Russia.

The bank is spending $200m rolling out a retail and private banking network in Russia’s biggest cities. A large marquee was pitched on Moscow’s pedestrianised Tverskoi Boulevard as part of a week-long HSBC-sponsored festival of classical music.

The bank has hired 300 staff and some were on hand to welcome curious Muscovites. The main branch’s air-conditioning was appreciated, although many may perhaps have balked at the required minimum deposit of 75,000 roubles ($2,420), in a city where the average monthly salary is $800.

Other British high street banking brands have been popping up around the city. Barclays has just completed a rebranding of 36 branches of Expobank, which it acquired in March last year for $745m.

Royal Bank of Scotland acquired three offices in Moscow and one in St Petersburg following its acquisition of ABN Amro.

A year ago, British businessmen and investors were afraid they might become pariahs in Moscow following a dispute at Anglo-Russian joint venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War.

The global economic crisis has helped paper over some of the political differences while the British seem happy to renew their interest in Russian expansion.

Russia remains one of the world’s last great untapped consumer markets even though rising unemployment, high inflation and a slowing growth rate make it a harder nut to crack.

The financial crisis took its toll on the luxury industry with boutiques in Moscow featuring British designers Alexander McQueen and Stella McCartney forced to close in January, but now the consumer economy is picking up, helped by a stronger rouble and oil hitting $70 a barrel last week.

Upmarket UK department store Harvey Nichols is understood to be scouting for locations for a flagship store in central Moscow while British toy chain Hamleys has signed a franchise agreement to set up in the city.

Foreign direct investment into retail remains a safer bet than energy and other sectors where the Kremlin has erected “strategic investment” barriers.

Mergers and acquisitions almost tripled in volume during May compared to April as dealmaking returned. Barclays investment banking arm BarCap and other institutions are ramping up to capitalise on a recovery in capital markets.

But a startling resurgence in the domestic equity markets is not expected to translate into any initial public offerings until next year. Future foreign listings could also be hampered if a proposed law is passed limiting IPOs on foreign markets to 5% of Russian companies.

The new regulations are part of a drive to channel investment in Russian securities away from foreign markets and on to domestic exchanges, where low liquidity causes volatility. Such moves have boomeranged in the past, however, due to concerns about restrictions on foreign investment into Russia.

The target of this campaign is the London Stock Exchange, which has historically been the desired destination for Russian blue chips to list. The LSE abandoned a plan to open a representative office in Moscow last year after 43 companies from Russia and the Commonwealth of Independent States pulled their IPOs in the wake of the worst trading crisis in Russia since its sovereign default in 1998.

RBS hires ex-Renaissance buyout boss

Financial News Online

Jason Corcoran in Moscow

February 3 2009

Rory Cullinan, former deputy chairman of private equity at Renaissance Partners, has rejoined Royal Bank of Scotland a month after leaving the Russian buyout group.

Cullinan spent 16 months at Renaissance after joining from buyout firm Permira in August 2008. Prior to that he led RBS' equity finance division and sat on the board for corporate banking and financial markets from 2001 to 2005.

An RBS spokesman said Cullinan had joined the wholesale global banking and markets division and would work on projects where his expertise will add value.

During his prior tenure at RBS, Cullinan was responsible for a portfolio of more than 100 companies. He also presided over a deal that saw RBS buy a controlling stake in Southern Water at a cost of £273m (€302m), becoming a director of Southern Water Capital.

Before joining RBS, Cullinan spent eight years in banking in South Africa, Europe and the US, mainly with Citibank. In 1992 he co-founded Verdoso, a private investment fund, which owned The Sellotape Company, remaining a partner until 2000.

Financial News yesterday reported Cullinan and Richard Olphert, the chairman of Renaissance Partners, had both left the firm, which is part of the Renaissance banking group.

A Moscow spokesman for Renaissance said the private equity team had been pared back to eight from a staff of 12.

Renaissance Partners, which raised a $600m (€467m) fund last year, realised substantial losses through investments in Ukraine and Africa, according to Russian business paper Vedemosti.