UBS Bets on Private Wealth Ties to Tilt Russian M&A Tables

UBS AG Russia CEO Nicholas Jordan
Nicholas Jordan, chief executive officer of UBS AG Russia. Photographer: Andrey Rudakov/Bloomberg

UBS AG, the world’s third-biggest wealth manager, is seeking to return to that level in Russia by parlaying its ties with private clients into mandates for mergers and acquisitions, country chief Nicholas Jordan said.

UBS was picked to advise OAO Concern Kalina on its sale last month to Unilever, the world’s second-largest consumer-goods company, after first managing the personal investments of the Russian skincare maker’s largest shareholder, Jordan said in an interview in Moscow on Oct. 27.

Jordan, 52, said a pipeline of “three or four” similar transactions should help UBS rebound in Russia, where it ranks 13th so far this year in mergers and acquisitions, down from eighth last year and second a decade ago, Bloomberg data show. The bank tumbled to 25th in equity and debt sales last year, after leading the tables in 2005.

“Kalina is a perfect example of the new world for UBS,” Jordan said of Unilever’s purchase of 82 percent of the maker of Silky Hands creams for 21.5 billion rubles ($694 million). “We have a private wealth management client who decided to exit one of his businesses and used our investment banking franchise to do so,” Jordan said, declining to identify the client.

Timur Goryaev, Kalina’s chairman and largest shareholder, couldn’t be reached for comment immediately when Bloomberg called the company’s Yekaterinburg offices.

JPMorgan, Goldman Sachs

UBS, Deutsche Bank AG and other foreign competitors have lost market share in investment banking in Russia since state-run VTB Group, the country’s second-largest lender, created VTB Capital three years ago and embarked on a hiring spree, including more than 100 bankers from Deutsche Bank.

“We aim to become again one of the top three foreign banks in Russia,” Jordan said. “I remember being part of a team that took Deutsche to number one in the late 2000s. I also remember how out of nowhere JPMorgan became one of the dominant banks today and how Goldman Sachs broke into the top five when they didn’t even have an office here.”

UBS is reorganizing its global investment bank to make the unit more closely aligned with the needs of its wealth and asset management businesses and has said it will reveal details of the overhaul on Nov. 17. UBS needs to be “less complex and more focused” in investments so it can achieve “less volatile results while using less risk,” Chief Financial Officer Tom Naratil said in London on Oct. 4.

‘This Type of Deal’

The Swiss bank’s wealth management and investment banking units collaborated in July on a $140 million share-backed financing deal for the controlling shareholder of a Hong Kong listed client, according to a company memo obtained by Bloomberg that didn’t identify the customer.

“This is the type of deal that is going to set UBS apart from other institutions,” said Kathryn Shih, UBS’s head of wealth management in the Asia-Pacific region, in the memo.

VTB was the leading organizer of Russian equity sales last year, surpassing now-No.2 Renaissance Capital, data compiled by Bloomberg show. Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co rounded out the top five. VTB also led debt sales for a second year, while Morgan Stanley was the biggest adviser for mergers and acquisitions, according to the data.

Jordan said he’s hired about 55 people in Russia so far this year, boosting UBS’s headcount to 220, including Antanas Petrosius from Credit Suisse as Jordan’s deputy for developing structured-finance products.

Dimon, Schwarzman

UBS is one of 23 banks the Kremlin selected to advise the government on its 1 trillion-ruble ($36 billion) privatization program, which stalled after the sale in February of 10 percent of VTB Group for $3.3 billion. Sergio Ermotti, UBS’s interim CEO, is one of more than two dozen bankers on a Kremlin advisory panel for turning Moscow into a global financial center. Ermotti joined JPMorgan’s Jamie Dimon, Deutsche Bank’s Josef Ackermann and Blackstone Group LP’s Stephen Schwarzman in discussing the project with President Dmitry Medvedev in Moscow on Oct. 28.

Jordan, an American who grew up in New York speaking Russian at home because all four of his grandparents were raised in the Soviet Union, is one of three brothers involved in banking. His younger brother Boris co-founded in the mid-1990s Renaissance Capital, the investment bank now partly owned by billionaire Mikhail Prokhorov. Another brother, Michael, works for a New York unit of billionaire Mikhail Fridman’s Alfa Bank.

‘Cynical Money’

Jordan was co-head of Deutsche UFG, the company created in December 2005 when Deutsche Bank agreed to buy the 60 percent it didn’t already own of Moscow-based United Financial Group, before leaving in 2007, when the bank topped the league tables, to run Lehman Brothers Holdings Inc.’s Russia office.

“The business is totally different nowadays,” Jordan said. “The IPO fees were higher than mainland Europe, ranging from three to seven percent,” he said. “I don’t see things returning to that level for several years.”

The benchmark Micex Index is valued at 5.2 times reported profits, the lowest among equity gauges in 21 emerging markets tracked by Bloomberg.

“Money dedicated to Russia’s emerging market is cynical money,” Jordan said. “It is money that expects the worse. For that reason it is only ready to pay for discounted valuations to peer groups globally.”

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