Russian investment banks VTB Capital, Renaissance Capital and Otkritie Capital are increasing headcount this year by as much as 38 percent and expanding abroad as global firms such as HSBC Holdings Plc (HSBA) and Goldman Sachs Group Inc. eliminate jobs.
VTB Capital, a unit of Russia’s second-largest lender, Renaissance Capital, the emerging-markets bank, and Otkritie, partly owned by Moscow-based VTB Group, are hiring in New York, London, Frankfurt, Kiev, Mumbai, Dubai, Hong Kong and Singapore. The expansion comes as Renaissance and Troika Dialog, acquired in March by OAO Sberbank, Russia’s biggest lender, compete with three-year-old VTB Capital to emerge as the nation’s top home-grown investment bank.
“Russian banks are flashing their checkbooks and capitalizing on the fact that many international firms have imposed unofficial hiring freezes,” Nick Rees, managing director of Moscow search firm Star Search, said by phone. “Candidates are drawn to Russian firms, which have lifted guarantees back to pre-crisis levels of up to $2 million for just director level.”
Western European securities firms and banks are cutting jobs after reporting declines in investment-banking profit as the continent’s sovereign debt crisis cripples trading. UBS AG (UBSN), Switzerland’s biggest bank, said this week it will pare about 3,500 jobs. HSBC pledged to eliminate 30,000 jobs by the end of 2013, while Zurich-based Credit Suisse Group AG (CSGN) said it will trim about 2,000 posts. In the U.S., Goldman Sachs said in July it will cut 1,000 jobs after a plunge in fixed-income revenue.
VTB Capital’s Atanas Bostandjiev, hired from Goldman Sachs in May to lead the brokerage’s push outside of Russia, said employment increased by 38 percent worldwide to 1,157 this year. The firm was started from scratch three years ago with the hiring of more than 100 bankers from Deutsche Bank AG in Moscow.
“We see huge potential for Russian companies to attract funds from local equity and debt capital markets” in Singapore and Hong Kong, Bostandjiev said in an e-mailed response to questions. Bostandjiev, 36, who is responsible for building the company’s Europe, Asia, Middle East and Americas businesses, expects to open a New York office soon, pending approval from U.S. regulators.
“VTB Capital wants to be a global investment bank just like Deutsche Bank and UBS succeeded,” Rustam Botashev, banking analyst and deputy head of research in Moscow at UniCredit SpA, said by phone. “But the investment banking game is getting tougher and tougher and the cost to the parent will be enormous if they are to achieve that ambition.”
Competition Heats Up
VTB Capital was the leading organizer of equity sales last year in Russia and the second-biggest underwriter of eurobonds last year behind London-based Barclays Capital, according to data compiled by Bloomberg. Makram Abboud, a managing director for Nomura Holdings Inc.’s emerging-markets team, will soon join to lead the bank’s Middle East expansion.
Competition has been heating up among the Russian investment banks as state-controlled lenders have pushed into the sector. Sberbank agreed to buy Troika Dialog for $1 billion in March. Troika’s local rival, Renaissance Capital, sold a 50 percent stake to billionaire Mikhail Prokhorov in 2008 for $500 million, 18 months after Renaissance rejected a $4 billion offer from state-run VTB Group, according to the Vedomosti newspaper. Otkritie hired at least 10 bankers from Renaissance last year, including oil analyst Alexander Burgansky.
‘Closing the Gap’
“Russia houses are closing the gap” with foreign banks said Yiannis Demopoulos, a London-based industry recruiter at Delta Executive Search. “But a single-market product like Russia can be difficult to monetize when you are marketing to international clients that may take a regional view.”
Otkritie Capital increased employment by 35 percent since January to 456 people in London, Frankfurt, Moscow and a new office in New York. Chief Executive Officer Roman Lokhov told reporters in May the bank is planning an initial public offering in 2013. After starting as a retail broker in 1995 and expanding into corporate finance three years ago, Otkritie was the biggest trader of futures and options on Moscow’s dollar-denominated RTS stock exchange in January and February this year, according to data compiled by the bourse.
“We are well on course to hiring 10 best-of-breed bankers for our midtown Manhattan office within the next six months,” Luis Saenz, chief executive officer of the U.S. unit, said by phone. “For early 2012, we will set our footprint in Asia by opening up a representative office in the region.”
Renaissance Group increased its investment banking, asset management, real estate and private-equity headcount by 7 percent during the first six months to 1,250. The bank has made senior hires in India, Africa, New York and London over the past two weeks and will announce more soon, said Preston Mendenhall, a Moscow spokesman. Ateev Chadda was hired from Religare Capital Markets Ltd. on Aug. 10 as head of investment banking and financing in India and followed the additions in July of Jonathan Segal as global head of debt capital markets from Barclays Capital and James Etherington, previously at Morgan Stanley, as head of U.K. equity capital markets.
“This is a great time to scout for talent with many of the bulge brackets retrenching and bankers tempted by Russia’s 13 percent flat-tax rate, which compares to 50p on the pound in the U.K.,” Mendenhall said by phone.
‘Less Need to Overpay’
A boom in commodities, record numbers of IPOs, the fastest-growing economy in Europe and a lack of home-grown talent led domestic and foreign banks to pay premiums in 2007 to attract top bankers to Moscow in 2007 when dealmakers such as Ed Kaufman and Nicholas Jordan were paid $7 million and more a year to move to Alfa Bank and Lehman Brothers Holdings Inc., respectively.
“There is a greater pool of strong Russian finance professionals now so there’s less need to overpay for expats,” Delta’s Demopoulos said.
Investment banks have earned $863.4 million in fees from Russia so far this year compared with $832 million for all of 2010, according to estimates from New York-based research firm Freeman & Co. It’s largely been driven by fees earned from mergers and acquisitions amid a slowdown in income from arranging IPOs, the data show. The value of Russian M&A totals $50.4 billion so far this year compared with $79.8 billion last year and a record of $131.9 billion in 2007, data compiled by Bloomberg show.
Russian Prime Minister Vladimir Putin’s government is auctioning off assets valued at about 1 trillion rubles ($36 billion) to help cover a budget shortfall this year seen at about 1 percent of gross domestic product. The Central Bank picked Troika Dialog, Goldman Sachs, JPMorgan Chase & Co. and Credit Suisse on June 14 to manage the sale of a 7.6 percent stake in Sberbank. Vedomosti reported on Aug. 23 the state may delay the sale planned for September after market declines, citing an unidentified person with knowledge of the situation.
VTB Capital’s Bostandjiev said the bank’s investment banking business earned 8.9 billion rubles in the first quarter this year, a 27 percent jump from the 7 billion rubles earned during the same period last year. Renaissance, Troika and Otkritie declined to detail their earnings.
Troika Dialog added four bankers this month, bringing global employment to more than 1,200. Chris Weafer was hired as chief strategist after just a month in a similar role at ING Groep NV. Olga Klimov came from UBS in New York as global head of equity sales based in Moscow and James Corrigan joined from VTB Capital for an investment-banking role.
The firm said this week it recruited Anton Malkov as director for equity capital markets from JPMorgan Chase. A Troika Dialog spokeswoman declined to comment on hiring plans and the synergies from the merger with Sberbank, which agreed in July to buy nine banks in countries including the Czech Republic, Slovakia, Hungary and most of former Yugoslavia from Austria’s Oesterreichische Volksbanken AG.
Troika, VTB and other Russian investment banks are expanding amid signs the global recovery is faltering.
“VTB is trying to repeat what it did during the last crisis when it built a successful team from scratch by opportunistically grabbing talent,” UniCredit’s Botashev said. “I was cynical then, but it was a good call then and maybe it will work again.”