Dawn raiders turn into gentlemen
What are your long-term aims for Unexim?
I think that within five or 10 years Unexim Bank will (consolidate its position as) one of the biggest financial institutions in Russia and place itself among the 100 biggest banks in the world. I think we are going to increase the capital of the bank which will allow us to do projects in billions of dollars which is important for our economy.
How will you increase the capital of the bank? Will you list on the Moscow stock exchange?
Maybe. But we are thinking about (various) sources of capital – (for example) the profits which our shareholders usually agree to leave in the bank to increase capitalization. At least until this year, shareholders have agreed to this. Then, we are ready to attract additional shareholders and maybe in three or four years (think) about selling our shares on the New York exchange, or wherever, but not earlier.
New York before Moscow?
I think so. Because if we want to sell shares it should be organized in an appropriate way and without that, frankly speaking, it makes no sense. If we decide to have a free market in the shares of the bank, it should be organized in an appropriate way. They should be liquid, expensive and known in the world, otherwise it makes no sense.
Prior to that will you include foreigners among your new shareholders?
We are not thinking about foreign shareholders for the time being. We are working with foreign partners in our different projects and we are very open to foreign partners. But, as to the bank, we don’t see the necessity to invite in foreign partners because we have our own technology (and) we have specialists who can compete with the best foreign bankers. We need more money, more capital, more expertise in giving loans to industrial plants etc. But we do not need any partnership in the bank at least at present.
How will Unexim and the merged MFK Renaissance work together?
We are going to work separately. On January 1 MFK Renaissance will become a single bank; they will be a normal investment bank. Their main target will be to ensure investments and they will serve not only the enterprises of our group but they should be competitive in the Russian market – even (working) with our competitors. They should be independent and have a large clientele, otherwise it’s not possible to develop the bank. (Investment) banks should be like doctors or lawyers. They should have a wide practice in order to serve clients well. If they deal with only one group or one bank or only several plants, they can lose their qualification; they do not see the whole business picture. That’s why (MFK Renaissance) will be absolutely independent and will work with everybody including our competitors. Unexim will stay a normal universal bank which will do all the range of normal banking operations.
How would you describe your relationship with Boris Jordan?
We are partners in this project and it is a useful partnership for both of us because Jordan and his team are very experienced in investment banking, and have good relations in the western world. I mean they do not only know people but they also know the mentality of investors. They are professionally prepared to discuss with them different issues at a high professional level. Our group was developed as one of the leading Russian groups and we know our internal market very well. We know people and the problems that we have here. It is a good link for us.
One view of the original partnership was that is was unequal. Unexim was smoothing the way politically for Renaissance yet only earning 20% of the profits through its shareholding.
Yes. But it was just a financial investment; it was not a strategic investment. We just wanted to see what would happen, how Jordan would develop his business etc. and after two years of cooperation we both came to an understanding that each of our systems could add something to the (other) partner, and that we’re stronger together than separately.
Going back to the beginning, what motivated you to start Unexim?
As you maybe know I worked for the ministry of foreign trade after graduating from the (Moscow) Institute of International Relations. It was my job to deal with foreign trade with currency accounting etc. etc. That’s why I was more or less prepared to work independently in this field after seven years in the ministry. When I left the ministry and started my own business, very soon I understood that banking and financial services are very important for the economy. At that time at the beginning of the 1990s, we had no developed market relations. During the Soviet Union era money didn’t mean a lot, it was just technical accounting. At the beginning of the 1990s, money became a real instrument of the relation of goods, of capitalization, of establishing financial relations. And because it was the least developed sector but very important, I had from the beginning an understanding that if I want to create a group of companies, well established in the market, the first problem I should solve is the problem of financial services … I spent two years finding the right people and understanding better what kind of services are needed.
So for two years before you left your job you were talking to people about it?
No. I left the job in March 1990 and created with Mr Prokhorov MFK in 1992 which meant that exactly two years were spent to understand better the situation and to find the right people.
What sort of people did you talk to? What sort of problems were there to be solved?
When you start any business and you have poor banking services, you understand that (opportunities) are narrow. The key point was when I met Mr Prokhorov.
How did you meet Mr Prokhorov?
How? I came to open accounts for my company at IBEC, International Bank for Economic Cooperation, on March 31 1991 (where Prokhorov was working). We met and we had our first discussion. We began to think about doing business together and in one year we started MFK.
Which company were you opening an account for?
I had a company called Interros. Right now we have this as an industrial group, but at that time it was a foreign trade association. I started this as my own business and within a year and a half, I saw the possibility to create a bank, and after I met Mr Prokhorov it became a reality. Together we managed to work this out.
Where did the original capital come from?
The initial capital was proposed by the shareholders and the initial shareholders were the Savings Bank of Russia (Sberbank), IBEC, Bank for Foreign Trade (Vneshekonombank) and Interros. The capital was very modest.
How did Interros become a financial and industrial group and what is Unexim’s role in it?
Frankly speaking (Interros) was a very small company. When you start a private business, it’s easier to start with something small. As far as I remember the capital of this company was Rb200,000, at the time it was several thousand dollars. It started with normal commercial operations, imports of goods such as electronics, Xeroxes, faxes, computers. At that time it was not such a high level of profit (for a new Russian trading company) as in the 1980s, but still it allowed us to earn some money. I started working with Foreign Trade Organizations, ex-Soviet monopolies, and very soon I understood that I could not propose to them anything serious because as a trading company it’s very difficult to develop from zero. I understood that the main problem for them was financial services. It was suggested that I should create a bank because as a trading company it was very difficult. The competition was very strong and it was very difficult to propose something new. All traders they are more or less the same … I started with financial consulting but the real need was for banks to serve all this ex-Soviet Union foreign trade because Vneshekonombank at that time felt bad and they (the FTOs) really needed something new. After that there was the idea to create a bank.
Why is the structure of the Interros FIG so unclear? Why can’t it be mapped out in the way it is for many large western conglomerates?
Western conglomerates have been developing for many years and they have elaborated their structures over many years. There were a lot of lawyers and financial people who worked on the structures. In our country the structures are not finished yet. We are buying some assets; we are selling some assets – it’s not fixed yet. Some parts of our structure are more or less clear. For example, we have a company called Interros Prom which is a part of the financial-industrial group, and this company manages all the assets which are not for the time being strategic assets. They can work on them; they can sell some of them or buy new ones. It’s more or less clear. We can have a number of companies which belong to this holding.
Who owns Interros Prom?
Interros Prom is owned by the Interros financial-industrial group which is owned, in its part, by 15 or 20 companies with whom we started this business, Unexim bank etc. Some of them have sold already their shares, some are still holding them.
What do you consider as strategic assets?
Strategic assets are Unexim Bank, Norilsk Nickel, Sidanko and Syvazinvest. Let’s take Norilsk Nickel. As I understand it, that is 38% owned by a company called Svift. Now who owns Svift? You mean shareholders?
Yes, who are the shareholders of Svift?
It’s difficult for me to answer who exactly the direct shareholders of Svift are, but Svift is, let’s say, controlled by our group.
By Interros FIG or by Unexim Bank?
Let’s say by the group of Unexim Bank. I can tell you about one problem. As you can maybe understand, Mr Prokhorov and myself we have, of course, in our own ownership certain assets etc and we are controlling some part of our business, but in Russia it ‘s not a good tradition yet to speak about your assets, about your capitalization, about your companies. It’s not the tradition to disclose the structure of holdings etc. That’s why when I told you it’s not fixed yet that’s one reason. The other reason why people do not speak about this is because rich people, in the public opinion, they are not, let’s say, good fellows. It’s not a question that it’s not legal. On the contrary everything is legal, taxes are paid, etc etc. But it’s not a good thing to demonstrate this in Russia. Maybe it’s fair because of the fact that the difference between rich people and poor people is very big, and I think that until the situation becomes more normal in the country, this gap is less and we have a middle class, it will be very difficult to speak about these things and to disclose the structure of holdings and to speak about the fortunes of private people. You understand?
Yes but by not disclosing don’t you just increase the speculation? Doesn’t it make things worse?
You know, we Russians have a certain mentality and when you live in the country you can understand this. Our feeling is that (disclosure) should be done step by step. Europe made a very long journey to the (current) situation whereby (people like) to know who pays what kind of taxes, who has what kind of fortune, and people read it with pleasure in the newspapers. We have quite another situation, another tradition. It may be a good (thing) or it may not, but for the time being I think it’s better to do it step by step. It’s not a question that we should hide that there are rich people and poor people but (disclosure) should be done together with the work to (close) this gap.
Won’t you have to increase disclosure to raise money on overseas markets?
We have already raised a lot of money for our different projects and these projects are quite transparent for the investors. It’s one thing to make a certain project transparent, it’s another thing to publish in a newspaper a (full structure).
Tell me about what is being done with a company like Norilsk Nickel. What are your plans for it and how will you find the capital to turn it around?
Very easily. We are finalizing the programme of making Norilsk Nickel healthy financially and next year will be its first profitable year. We have done a lot of work to make the balance (sheet) of the company transparent and clear to investors. We are trying to restructure all debts. We have assured normal day-to-day management of the plant.
I understand you have put about 35 people from Unexim into Norilsk Nickel.
They are not all from Unexim. Some are from Unexim Bank; some of them were hired by Unexim Bank but now they are all working in Norilsk and making up part of the staff. For example, Mr Khloponin who is general director used to be the president of MFK.
Is this being done by Unexim?
No, it’s not being done by Unexim but we have (searched and found) a lot of specialists and now there is a good team of professionals in metallurgy, financing, processes, etc. We are restructuring the internal situation in Norilsk. Some of the units are to be extracted and we are making them independent. We are doing a lot of things and next year will be the first year of profitable work. All debts should be restructured by that time. We have already restructured the debts with the government, the federal budget … with pension funds and some other funds.
Only two things remain: the debts to the regional administration – where negotiations are underway – and commercial debts. By January 1 we will restructure all this and the balance (sheet) of Norilsk will be absolutely healthy. We are making a new issuance of shares right now which will help us to raise about $1 billion which will be the capital for a two- or three-year strategic programme of modernization. This decision will be taken at the next shareholders meeting in November.
Why have you decided not to be involved directly in the management of Unexim Bank?
Because Unexim is very important but is only one element of the group and somebody should conduct the management at a high level. There are a lot of things which have to be coordinated at the level of holding. That’s why I have no management position in Norilsk, or in Unexim, but I am either a member of the board or chairman of the board in different organizations and I am coordinating things.
Why did you decide to go into government? (Potanin was first deputy prime minister in charge of the economy for nine months.)
It was at the request of Mr Chubais. It was a difficult year (for the government) because the president (Boris Yeltsin) was ill, Chernomyrdin had a lot of (extra) work and Chubais was head of administration. It meant there was nobody to do something about economic problems. Chubais asked me to accept this position.
But why were you there for only such a short time?
The situation changed during that time and I had very complicated relations not only with Chernomyrdin but with the staff of the White House because, frankly speaking, I do not like their style of working. The main problem is that being a businessman I always try to work for a result and for the bureaucrats the result doesn’t mean a lot. The process is important and it was very important for them to respect all the rules. I was strongly against all this. I considered and I still consider that the situation is very difficult and we should make a big (effort) to turn the Russian economical situation for the better. It’s not a question of just monitoring the situation. We should take particular steps and have a result.
What are the two or three main things that the government should be doing?
First of all I think they should have a realistic budget since because of the unrealistic revenues in the budget all the structure of payments in the country is very artificial and non-payment problems (are exacerbated) by an (incorrect) budget. The second point is that 90% or maybe 80% of the economy and enterprises are not healthy because of the debts and the problem of non-payment which means that, immediately, we should restructure the debts of the companies otherwise they cannot work, they cannot have normal balance (sheets) and they cannot get investment. The third point is that we should assure social reform but, economically, it means that housing and everything in the social sphere should become profitable otherwise it will not work.
One of your roles at Unexim has been to smooth the way for the group politically?
Yes but frankly speaking it was not the main thing which allowed us to create all this. The main thing was the right strategic plan and the right people – a good team. All the rest was in addition to this … For example, we were maybe the first to decide to acquire important industrial assets like Norilsk and Sidanko. The loans-for-shares scheme was the way to control big industrial projects in the real sector of the economy. Now it gives us a big advantage. We already have experience, we already have assets which are getting more and more expensive every day, and it gives us a good base for development.
How do you feel about your robber baron image in the media?
(laughs) It’s difficult to change this in a short period of time. That’s the first point. Then we (Russian bankers) do a lot ourselves to support this image because of all our internal banking wars. I wouldn’t say that the attitude of our western competitors is absolutely negligible in this process when representatives of Russian capital are starting to establish strong positions.
So are foreign banks responsible for spreading this image so they can win business?
No I don’t think so. We are responsible ourselves for this. We are giving a lot facts each day which could be considered as wrongdoing, as corruption, mafia or whatever. We are producing good material for this. I just say that our competitors can use this and do not struggle against it. Of course they are not initiating it but they are not in a hurry to say: “No that’s not true.”
Why are leading Russian industrialists giving all this material to the press? Why are there so many fights going on?
It’s a difficult question. Maybe the struggles for power and better positions are making people choose methods that are even dangerous for themselves. I mean that if one (group) says that another is bad, it gives the impression that everyone is bad. The problem is that big business in Russia has a very high level of concentration. We can take 12 or 15 companies, the biggest companies in the country, and they will have practically all GNP under their control, or at least more than 50%.
So how will that situation be resolved? These companies are getting bigger not smaller.
It’s difficult to resolve the situation because in Russia, historically, the concentration of capital has been very high. Even before the (communist) revolution, the concentration of industrial capital was very high. Then after the revolution we had a period of 70 years when the policy of the government and the Communist Party was to create big (centralized structures) in the economy. If they made some kind of product, it should be the only plant supplying all the country. Historically we have such a high level of monopoly in the economy in all spheres, not only in military production but in machinery, machine tools, textiles, everything – a lot of big plants and monopolies. It’s very difficult to change this because they are still there these plants. Another problem is that for big plants we created cities and so they are linked. Social problems come together with industrial and financial problems and it’s very difficult to solve this.
That’s why I’m saying it’s very important to solve the problem of social reform, to make it profitable (privatized), because otherwise it is not possible to work when the plant is efficient but the social sphere in the town is not efficient. Even if from the formal point of view (welfare responsibilities) are not on the balance sheet of the plant, still it cannot work because the families of the workers are living in these cities; it’s all connected. Even if they (companies buying state assets) are not obliged under the law to pay all expenses of the town they cannot (survive) without (solving social problems). That’s why it’s very important to change the situation … The government should have a policy of creating a middle class and a policy to encourage those who are creating competition to the monopolists. But now this policy doesn’t exist in the country. That’s why it’s going so slowly and we are still suffering from monopolies of different (groups).
What was said at the recent meeting between Yeltsin and the major Russian bankers? The way it was presented was as if you were all schoolboys going to be lectured by the grandfather.
It was to a certain extent like this. (Laughs) Yeltsin has explained to us his ideas regarding the new economical policy of the president of the government. He told us about several features of this: new rules, equal attitude to all the (groupings), no favourites, no budget accounts in banks, everything on a tender basis. But in my opinion the idea was to explain to us that: “Gentlemen you should play by the rules which are established by the president and the government.” And it was very clear that those who are not going to play by these rules will not be encouraged by the (authorities). That was the main idea.
And has anything changed since then? Are you behaving like gentlemen?
For us, yes, but as for my colleagues and competitors … You know, when you have a weapon it’s very difficult to refrain from using it especially when your opponent has no equal weapon. That’s why it’s understandable that Mr Berezovsky and Mr Gusinsky are using their positions in mass media to make these attacks. We have other weapons, let’s say, our economical possibilities. Again here is a certain kind of monopoly and it’s very difficult to refrain from using it … I don’t think (the information war) will be immediately stopped.
What about your own media interests such as the Russian Telegraph? What are your aims with this?
My understanding is that without a normal atmosphere in the country it’s not possible to develop business, neither in the country nor internationally. That means that each of us should do something to create a normal climate in the country. The purpose of the Russian Telegraph is that people should read articles about the situation written in a good professional way. It’s not a matter of saying that this bank is good and that bank is bad, or this (group) is good or this (group) is bad. There should be a certain culture of business and a certain environment. We think that such newspapers should explain to people what kind of things are going on in the economy.
For us it’s not a weapon. It’s two things. First of all it’s, say, creating a normal climate of understanding and second it’s business, however – it’s possible to make some money from this. But I wouldn’t be frank unless I said that the position in mass media is also a balancing power. It doesn’t mean that it should be used as a weapon … You know that during the Cold War there was a theory that when both sides have nuclear weapons, they don’t use them. This is the same thing.
Have your competitors succeeded in damaging Unexim?
The first attack was in July. The final point was our winning in Syvazinvest. I would say our reputation in the western world has gained a lot after this auction. We will base all our future actions in the western world on our reputation after this auction. Then there was a new attack, and it was during this stage of attack that we managed to win Norilsk Nickel. Right now the only thing is that as (a group) we are presented badly in the public arena, especially in Russia. Unfortunately, as I told you already, people do not like rich people in our country which means it is very unpleasant. But it doesn’t affect the business.
I would say that, on the contrary, some of our competitors are paying too much attention to this war and are not concentrating on positive economic work. During the whole time we have managed not to pay too much attention to these attacks and you can see we have not made any response. We have not published compromising material on our competitors. We have just tried to avoid escalating the confrontation … If our competitors continue to work like this the gap they say exists between us … will be bigger not less. In order to make the gap less they should work on positive issues but they are working on negative issues and this gap is starting to (get) bigger. Frankly, I don’t like the situation because I don’t want to be among three or five (organizations controlling the Russian economy); even 15 or 20 is not enough.
What about the big assets remaining in Russia such as Gazprom? Are you interested in these?
Gazprom I think is finished because the remaining shares will stay in government hands.
So you have no ambitions to acquire Gazprom?
No. And also we have no ambitions to buy Unified Energy Systems, 51%. I think that maybe they should be in the ownership of the government. The other thing is that Russia has plans to create independent power producers. I think this is subject to privatization. We will all participate in this. Also, independent gas extracting companies with equal access to the pipelines. If we have such a system, maybe, we will invest in independent organizations.
But you are interested in Rosneft and the rest of the Syvazinvest shares?
Yes.
What about Aeroflot?
In order to participate in Aeroflot you should have a strong position in aircraft production because, in my opinion, Aeroflot is just a company to serve the needs of aircraft plants. Without this it doesn’t make any sense. For the time being we are not working with aircraft producing plants. If privatization of Aeroflot were to happen right now, it would not be a strategic objective for us. If we participate it will be only as financial consultants for somebody else. If it happens in several years and by that time we have interests in aircraft producing plants, in that case, we could consider it as a strategic investment.
Which of the big international banks do you admire the most?
You know it’s impossible to answer this question. Different banks have their own advantages and I cannot say that one particular bank is a kind of model for us.
It has been said that Russia is modelling its banking on the German system.
Deutsche Bank, for example. But on the other hand Deutsche Bank is much more conservative (than us) … but maybe it’s the fact they are much bigger than us. For the time being as a model we are more or less developing like Deutsche Bank but we feel we should be a little more flexible or aggressive if you want. In this respect we feel that some American investment banks are more similar in attitude to us … I admire American banks for their capacity to make important decisions quickly, to organize huge deals, to structure them in an appropriate way, in their aggression and in their flexibility to different ideas. But on the other hand we are very carefully studying the experience of Deutsche Bank because they are very well organized, everything is very strict and you feel that all steps they make have taken a lot of time and people. It works like a very good machine. This we also need because when you start to develop something it’s good to be aggressive but when you start working in a normal style you should have a very good machine. It’s difficult to say we prefer this style or that style. It should be a good combination.
