In the gleaming headquarters of Moscow investment bank MFK Renaissance, the trading floors are quiet. Once highly paid staffers are packing up their desks and heading home, victims of a wave of layoffs since Aug. 17. That was the day the government defaulted on $40 billion in short-term debt, destroying Russia's already tattered financial markets. "It's bad. It's a disaster," says Boris Jordan, MFK Renaissance's CEO. "Traditional investment banking in Russia is dead."
Yet Jordan, a 32-year-old American who has earned millions playing Russia's wild market, is staying. He is struggling to salvage what he can from the remains of the group's investment banking arm, Renaissance Capital. Last year, Renaissance boasted assets of $450 million and net income of $100 million. Today, assets have shrunk to $75 million, Jordan says, while equity capital has plunged from $160 million to just $50 million. To burned investors, his goal may sound crazy: He aims not just to survive but to profit from Russia's bad debts.
It's a far cry from the heady stuff of billion dollar Eurobond issues. Still, Jordan, who helped build the Russian stock market in the early 1990s as a Moscow representative for Credit Suisse First Boston, is betting he can snap up deeply discounted Russian assets that will eventually rise in value. Although Renaissance is keeping its cards close to the vest, Jordan seems to be modeling his new business partly after Citibank, which profited from debt restructuring after Latin America's 1980s financial crisis. Renaissance is positioning itself to buy debt from Western and Russian creditors for cents on the dollar, then collect real assets, such as property or equipment, or shares that were used as collateral. These could be sold for cash or held until they rose in value. "The future is in trading, collecting, and doing transactions on bad debt," says Jordan.
The bank has already set up a 15-person debt-collection team that is making the rounds of insolvent Russian banks. They're scooping up anything they can in lieu of debt payments--property, leases, promissory notes, and other securities that can be sold at a discount, Jordan says. Still, Thomas Reed, an investment banker who has formed a rival firm, Kremlin Partners, to do debt restructuring, warns that established banks such as Renaissance may have a hard time drumming up investor interest: "If you sold them the bad bond, are they going to be willing to give you money to get money back?" he asks.
LONG HAUL. To be sure, Jordan has no shortage of chutzpah. The grandson of Russian aristocrats who fled the 1917 revolution, he and his partner, Stephen Jennings, made fortunes helping foreigners buy shares in privatized Rus-sian companies in '93 and '94. In 1995, they formed Renaissance Capital. Vladimir Potanin, a Russian banking tycoon, helped bankroll the duo, who also manage money for financier George Soros.
Renaissance prospered as Jordan and Jennings helped the government issue Eurobonds and managed other big deals. But the company also made mistakes. Late last year, it agreed to merge with a commercial bank owned by Potanin. Known by its Russian initials MFK, it turned out to be riddled with bad debts. Potanin and Jordan recently scrapped the merger. In 1997, Jordan's bank also sunk $65 million, or 40%, of its capital into a deal with Potanin to buy a stake in Svyazinvest, a communications company. At current market values, the stake is worth just $17 million.
Now, Jordan is scrambling to rebuild. He's in talks with western and Russian investors to combine their Russian assets in a pool he would manage. One backer may be London-based Barclays Capital, to which a financial source says Renaissance owes $90 million. Jordan denies it. But sources suggest Barclays could back Jordan to recoup its debt.
One way or the other, reviving his company will prove a long haul for Jordan. Most foreign investors have lost confidence in Russia. Still, having already earned his first fortune--and not lost all of it--Jordan says he's convinced there's still money to be made.