VTB Said to Mull Shrinking NYC Office on Ukraine Crisis

VTB Capital, Russia’s largest investment bank, is considering cutting most of its New York staff if the U.S. imposes further sanctions over the conflict in Ukraine, two people with knowledge of the plan said.

The bank is reviewing whether to wind down its trading operations in New York, where it has about 40 employees, and leave just a representative office, the people said, asking not to be identified because a final decision hasn’t been made. The state-run company has already cut 100 overseas jobs this year, mainly in London and New York, one of the people said.

Paul Swigart, head of VTB Capital’s U.S. business, wasn’t available to comment by telephone. His secretary referred the inquiry to the company’s press office in Moscow, which declined to comment.

The firm, a unit of VTB Group, Russia’s second-largest lender, received a license to trade stocks in the U.S. in 2011 and has the biggest business of any Russian bank on Wall Street. The company canceled its annual U.S. investor forum scheduled for earlier this month as tensions flared over Ukraine, where clashes between pro-Russian militias and federal forces left three people dead over the weekend.

“As western banks pull back from lending to Russian companies, there will be little competition in Russia itself,” Philip Keevil, a New York-based partner at advisory firm Compass Partners LLC, said by e-mail. “You will see an increasing trend for Russian banks to pull out of the West and refocus domestically.”

Tougher Penalties

The move highlights Russia’s increasing isolation since President Vladimir Putin annexed the Black Sea peninsula of Crimea from Ukraine last month. The U.S. responded by imposing sanctions on more than two dozen individuals and one company, St. Petersburg-based OAO Bank Rossiya, for being, as the Treasury Department said, part of Putin’s inner circle.

With no sign of tensions easing in the mainly Russian-speaking eastern part of Ukraine, the U.S. is ready to impose additional penalties if progress isn’t made, according to an official who traveled to Ukraine with Vice President Joe Biden, speaking on the condition of anonymity. Biden arrived in the capital Kiev today for talks.

Two members of the Senate Foreign Relations Committee, Democrat Chris Murphy and Republican Bob Corker of Tennessee, are calling on the Obama administration to target Russia’s energy and banking industries for sanctions.

VTB Chief Executive Officer Andrey Kostin said this month that Russia is in a new Cold War with the U.S. and Europe that may result in all Russian lenders being blacklisted.

Asia Pivot

As a result of the political standoff, VTB Capital is switching its focus to Asia, particularly Hong Kong and Singapore, where it already has sizable operations, one of the people said. The bank’s New York office offers Russian equities and debt to emerging market clients based in the U.S.

“VTB Group has announced plans to reduce compensation costs at JSC VTB Bank and its investment business VTB Capital by 15 percent this year and clearly VTB Capital International is part of this,” Atanas Bostandjiev, head of overseas investment banking, said in a statement e-mailed on March 31.

VTB Group earned 15 percent of its revenue outside of Russia in 2012, according to data compiled by Bloomberg. VTB Capital is the biggest organizer of Russian equity and bond deals over the past three years, the data show.

Investment banks in Moscow led by VTB Capital, Sberbank CIB and JPMorgan Chase & Co. have endured a 67 percent slide in fees so far this year, according to data from Freeman & Co., a New York consulting firm. VTB Capital earned $101 million in fees last year, the most of any bank in Russia, the data shows.

VTB Group’s London-traded shares have fallen 29 percent since the start of the year, compared with an 18 percent decline for the dollar-measured RTS Index of Russian stocks.

(Corrects to show VTB’s Swigart wasn’t available to comment in third paragraph of story published yesterday.)
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