Aug. 14 (Bloomberg) -- Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein apologized to VTB Group CEO Andrei Kostin for an analyst's ``sell'' recommendation, a VTB spokesman said. Goldman helped underwrite the Russian bank's initial public offering three months ago.

Jernej Omahen, a Goldman analyst in London, last week started coverage of VTB, saying in a note to clients that ``we see better value elsewhere.'' Blankfein told Kostin on a phone call he didn't ``share that point of view,'' Sergei Kopytov, a spokesman for VTB in Moscow, said today, confirming a report in Kommersant newspaper.

The situation highlights the tension U.S. investment banks face wooing clients in developing markets while complying with regulations at home that compel them to publish independent research. Goldman, which lags behind competitors in Russia, is adding 25 bankers in Moscow this year to tap what it considers the country's ``huge potential.''

``It's good to see that Goldman is allowing analysts to value companies independently, but in Russia research typically remains subservient to investment banking,'' said James Beadle, a portfolio manager at Pilgrim Asset Management in Moscow who bought VTB shares in the IPO. ``If Goldman is not prepared to support stocks post-IPO, there are plenty of other underwriters that will.''

Russian License

Blankfein said in June that the rapid growth of countries such as Russia means that ``if you forgo the opportunities in emerging markets, you're putting your global franchise at risk.'' Goldman received a license for brokerage operations in Russia last year, joining Citigroup Inc. and Morgan Stanley in Moscow.

Goldman spokesman Lucas van Praag declined to comment on the conversation between Blankfein and Kostin.

Goldman in May helped manage state-run VTB's $8 billion public offering, the world's biggest IPO this year. The shares were sold for 13.6 kopeks apiece in Moscow and $10.56 per global depositary receipt in London.

Russians, who lost billions of dollars in multiple bank collapses and stock-market schemes in the 1990s, rushed to buy VTB stock in the so-called ``people's IPO.'' President Vladimir Putin called the stock a ``stable'' investment during a news conference in February.

Omahen set a price estimate of $10.73 for the depositary receipts. The shares have since dropped from $10.50 to $9.62 in London, including a 1.5 percent decline today. Omahen's recommendation hasn't changed.

Independent Research

``The recommendation was about the attractiveness of investing in banks with ratings below VTB, which the analyst believed had considerable upside potential,'' Goldman spokesman van Praag said. ``Our research is completely independent of our advisory business.''

A message left at Omahen's office after business hours wasn't immediately returned, and an assistant who answered the phone said he's not allowed to comment. Omahen didn't reply to an e-mail seeking comment and no home number could be located.

Goldman was among the 10 firms that agreed in 2003, in a settlement with U.S. regulators, to erect barriers between research and investment banking after conflicts of interests tainted the securities industry.

To contact the reporters on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

Last Updated: August 14, 2007 18:48 EDT