Barclays and HSBC march on Moscow
BarCap boss putting 'considerable' money to work in Russia
Monday 02 November 2009
Banking giant Barclays is spearheading a new British invasion of Russia’s high street, according to one of its most senior bankers, as relations between the two countries bounce back from last year’s low point.
Barclays, as well as rival HSBC, have become increasingly visible across central Moscow with new branches and high-profile advertising as part of a move to aggressively expand in Russia’s major cities.
Hans-Joerg Rudloff, chairman of Barclays Russia and the investment banking arm Barclays Capital, said the group was making significant capital and trading commitments to Russia in light of an improving investment climate.
He said: “The battle against the command economy has been won and there are signs that ongoing reform will be favourable for the investment community and that is part of the reason I am putting considerable amounts of money to work in Russia.” Barclays has 36 branches across the country and is expanding its operations to offer full-service retail banking from previously offering support mainly to small and medium enterprises. Stuart Lawson, head of HSBC Russia said last month that the group would be “aggressive” in expanding its existing four branches in Moscow and one in St Petersburg.
A year ago, British firms were afraid they might become outcasts in Moscow following a dispute at Anglo-Russian joint energy venture TNK-BP, the closure of the British Council’s offices in Russia and the Kremlin’s refusal to extradite Andrei Lugovoi, the chief suspect in the London killing of dissident Alexander Litvinenko. Diplomatic relations between the two Governments sank to their lowest point since the Cold War but the economic crisis and the need for foreign investment stimulus has since helped to paper over political differences.
Mr Rudloff said BarCap, which lost £250m after Russia’s sovereign default in 1998, would also help build a domestic capital market. He added: “Right now, we are entering a phase where everything seems to go on green light. It is evident that Russia is now making huge strides to move forward, be responsive and get things going. It’s a big offensive directed at foreign investment and will undoubtedly lure investors into the market.”
Barclays, which acquired local player Expobank last year for $745m, has recently hired two senior financiers on the ground to build their businesses.
Nikolai Tsekhomsky joined from state bank VTB last month to head up Barclays retail and commercial banking business. American Bob Foresman,the former deputy chairman of Russia’s Renaissance Capital, will start work as Barclays country manager on December 1. He will be responsible for building investment banking on the ground as well as the launch of a new local asset management business to cater to Russia’s wealthy.
HSBC, which already has corporate and investment banking interests in the country, is spending $200m rolling out a retail and private banking network. Royal Bank of Scotland’s blue and white livery has also surfaced in Russia thanks to its acquisition of Dutch Bank ABN AMRO’s operations. Mr Lawson believes the UK banks offer a better service than domestic rivals. He said: “In addition to providing conduits for Russian corporates to access international debt markets, foreign banks are helpful to the Russian market as they import innovative products and also provide sources of training for Russian bankers.”
Foreign banks burnt by Russia’s sovereign default in 1998 turned off the taps to international credit in the aftermath of the current economic crisis. The banks are reluctant to open new lines of credit until oligarchs agree to painful debt restructuring of $437bn (£265m) in foreign debt.
BarCap has billions of debt in the Russian public sector although virtually no exposure to the troubled private sector. Railway monopoly RZD repaid $1.5bn late last year.
A lack of regulation of Russia’s local bond market have resulted in over 100 defaults since the crisis hit. Bondholders, who have very limited statutory rights, have in some cases accused issuers of ducking their responsibilities and stripping assets.
Eric Kraus, a strategist with investment bank Otkritie: said: “By allowing the bond holders to be robbed outright, the financial regulators have ensured that no second or third-tier company will be able to raise finance again.”
Rudloff would like to see tougher regulation and the establishment of arbitrage courts to resolve disputes. He said: "There should be a review of the bankruptcy procedures. That would be one of the most important measures to establish clear procedures if a default occurs."
Rudloff, who sits on the board of oil giant Rosneft, stepped down from the Russian media company RBC due to a conflict of interest over $18 million (£11m) in debt owed to him and his friends.
RBC, which may yet be acquired by Russia’s richest oligarch Mikhail Prokhorov, has offered creditors to restructure half its debt and asked them to accept a 64% discount on the remainder.
Rudloff’s own family office has operated in Russia since 1995. As chief executive of Credit Suisse First Boston in the early 1990s, he sent bankers Stephen Jennings and Boris Jordan to Russia to scout for deals. The pair became involved in the state's pilot voucher auctions and soon left to set up investment bank Renaissance Capital.
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