Barclays ‘Driven Out’ of Russia as State-Run Lenders Advance

Barclays Plc and Banco Santander SA are among western lenders abandoning retail operations in Russia as state companies gain market share and expand into investment banking.

Barclays is disposing of the retail unit it acquired for $745 million in 2008, the third-largest U.K. bank said last week. Santander, Spain’s biggest lender, sold its Russian consumer bank to auto-loan specialist Orient Express two months earlier. HSBC Holdings Plc may close its Russian branches, the Kommersant newspaper reported yesterday, citing unidentified people familiar with the matter.

“Foreign players without sufficient scale are being driven out of the country,” said Rustam Botashev, deputy head of research at UniCredit SpA in Moscow. “They cannot successfully compete with the domestic banks.”

OAO Sberbank, VTB Group, Russia’s top two banks, are exerting a growing dominance. Sberbank has almost 20,000 branches nationwide and accounts for 27 percent of Russian banking assets and 26 percent of banking capital. VTB’s retail business, VTB-24, has more than 530 offices and its investment banking unit is the biggest organizer of bond and equity sales.

JPMorgan, HSBC

VTB agreed to buy the Moscow government’s shares in Bank of Moscow for $3.5 billion in the biggest acquisition by a lender in the country. VTB is also purchasing OAO TransCreditBank, while Sberbank pursues an investment bank. State banks will control more than 60 percent of the underwriting market for domestic bonds if these acquisitions are completed, according to Bloomberg data. Barclays was the leading arranger of international bonds out of Russia last year, followed by VTB Capital and JPMorgan Chase & Co., the data show.

Barclays, Banco Santander and HSBC aren’t alone in giving up. Belgium’s KBC Groep NV has to sell part or all of its stake in Moscow-based Absolut Bank as part of a 7 billion-euro bailout agreement with the European Commission, according to KBC spokesman Stef Leunens. Rabobank Groep NV, Europe’s biggest farming lender, asked Russia’s central bank this month to annul its license so it can concentrate on other countries, including China, India and the U.S.

“We have changed our priorities,” Manel Vrijenhoek, a spokeswoman for Rabobank, said by phone from Utrecht, the Netherlands. “You have to make choices of how to deploy resources and we see better opportunities in other markets.”

UniCredit, SocGen

Last year, Morgan Stanley, owner of the world’s largest brokerage, sold its local mortgage unit and Swedbank AB, the biggest Baltic lender, started curtailing its Russian retail operations. Thomas Backteman, a spokesman for Swedbank, said the Stockholm-based lender failed to secure enough scale to be profitable. A Banco Santander official in Madrid declined to comment on the bank’s decision to leave Russia.

HSBC, Europe’s biggest bank by market value, will probably decide this month to abandon its consumer business in Russia, after failing to gain market share in the two years it’s been open, Kommersant said. “No decision has been made to exit one of our businesses in Russia,” the bank said in a statement.

Barclays, based in London, will focus on organizing bond sales, initial public offerings and cross-border transactions, Hans-Joerg Rudloff, the chairman of Barclays’ investment banking arm, said in an interview on Feb. 16. Barclays is one of 22 banks the Russian government hired to help sell as much as 1 trillion rubles ($34 billion) of assets over the next three years. The Russian Auction House, a joint venture between Sberbank and the St. Petersburg government, was also chosen as an organizer. The Russian government raised $3.3 billion on Feb. 14 selling a 10 percent stake in VTB in the largest state asset sale since the bank’s initial offering four years earlier.

“Subscale businesses don’t belong in our portfolio,” Rudloff said. “We will concentrate on what we know best.”

‘Huge Potential’

Other foreign banks have been more successful in building a foothold. France’s Societe Generale, which gained almost 3 million clients by gaining control of Moscow-based OAO Rosbank in 2008, saw a turnaround in its Russian business last year. Its consumer unit posted a 13 million-euro profit in the fourth quarter, following a loss of 58 million euros a year earlier, according to the bank’s website.

Paris-based SocGen expects Russia to be the largest contributor to international retail earnings by 2015, it said last June. The company has more than 600 branches in Russia and more than 16,000 employees, more than in any other country outside of France.

UniCredit, Raiffeisen

UniCredit SpA, Italy’s biggest bank, raised its stake in ZAO International Moscow Bank to 100 percent in June 2007. Raiffeisen International Bank, Austria’s biggest by market value, paid $500 million for Russian lender Impexbank in 2006, making it the country’s largest foreign bank. UniCredit has more than 100 branches and 3,700 employees in Russia, where it is a “top 10 bank,” according to its website. Raiffseisen is the ninth largest bank in Russia by assets.

“Foreign banks like UniCredit, Societe Generale and Raiffeisen have been here a long time and have done well,” said Leonid Slipchenko, a banking analyst at UralSib Financial Corp. in Moscow. “Russia remains a growth story and there is huge potential for banks to tap the rapidly growing consumer-lending market.”

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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