Best bank – MDM Financial
Best debt house – Citigroup
Best M&A Brunswick – UBS
Best equity house – Aton Capital
Best local partner – United Financial Group
Two trends in Russian banking are making this an especially competitive and exciting time. “The rush there at the moment is great,” says one banker. “It’s like 1997 again.” Let’s hope what happens next is not too similar to the aftermath of that earlier boom.
On the regulatory side, the government is finally introducing banking reform, which will consolidate an overcrowded sector. From a commercial point of view, growth is rapid, particularly in four sectors – corporate bonds, retail deposits, mergers and acquisitions, and consumer loans and mortgages.
The growth in consumer loans and mortgages is putting pressure on the banks, because they are finding it difficult to raise long-term lending themselves. As a result, the banks that will thrive in these sectors need to secure long-term financing from the bond markets. A handful have successfully launched international bonds in the past 12 months, including Moscow Narodny, Uralsib and MDM Financial.
In corporate bonds, the market is on fire right now. Indeed, most analysts expect a correction in the rouble market soon, where domestic investors are not examining credit quality but merely searching for yield. The international market is also seeing strong supply and high demand – in February, Gazprom issued a $1.75 billion deal, the biggest corporate bond in emerging-market history. Other names, such as oil firm TNK and conglomerate Sistema, followed suit. Russian companies paid much higher fees than CEE sovereigns, so if you spoke to any CEE syndicate head this year, the subject that got them excited was Russian corporate bonds.
M&A was particularly active in Russia this year, with the big BP-TNK and Yukos-Sibneft mergers dominating, but other interesting deals involved Slavneft, Norilsk Nickel, and telecom company MTS.
Citigroup, MDM Financial, and Alfa Bank (a subsidiary of Austrian firm RZB) were all in the running for the best bank award. It was a close call between Alfa and MDM. In some areas Alfa Bank is the clear market leader. In retail banking, for example, it has gained market share, partly thanks to its new initiative, Alfa Bank Express, which introduced 24-hour branches to Moscow. Alfa’s assets are greater than MDM’s. Alfa also beats MDM in M&A, though its strong results this year were partly helped by its parent company’s deal with BP, on which it advised.
Both Alfa and MDM have launched bonds of similar sizes in the past year. Alfa’s is trading tighter than MDM’s, though another bank, Moscow Narodny Bank, is trading tighter than both of them.
However, MDM Financial has grown much faster than Alfa Bank, and is already leading Alfa in several areas. As one Russian banking analyst put it: “MDM Financial has had the best year. Alfa Bank’s figures are good, but MDM Financial is in the supernova stage.”
MDM’s after-tax profit is $5 million higher than Alfa’s, even though its assets are smaller. It has seen rapid growth in several assets – 121% growth in corporate deposits, 94% growth in net loans, 49% increase in net interest income. In capital markets activity, it has carved out a strong position in the domestic bond market, where in the bookrunner league tables it is third behind Trust and Investment Bank and Web-Invest. Alfa Bank is just tenth.
MDM is also a market leader in trade finance, where its business has grown ten-fold in 18 months, and is now worth $200 million. The bank has also helped the growth of the forfaiting business. And in retail banking, it has gained ground quickly, making several acquisitions of regional banks to expand its branch network, which helped retail deposits to grow by 134% in 2002.
MDM’s own financing has been impressive, with an international bond issue successfully placed after aggressive marketing, and a commercial paper programme set up by Standard Bank, in addition to several syndicated loans, one of which was guaranteed by the US Ex-Im Bank. It is also planning a securitization issue.
Thanks to these initiatives, MDM won our best financial borrower award earlier this year.
Despite this rapid growth, the bank is not taking unnecessary risks. Its capital adequacy is good, at 16.1%, its non-performing loan ratio is low at 1.9% and its coverage for these loans is 385%. Analysts also claim that it enjoys greater independence from its parent company than Alfa Bank did. And it is better at corporate governance – Alfa Bank makes IAS audits every year, but MDM makes IAS reports every quarter, and is also the first Russian bank to get an S&P corporate governance rating. The bank’s corporate governance will be further improved if it sells an equity rating to a foreign strategic investor later this year, as it plans to do.
Citigroup wins the best debt house award, thanks to its top league slot in the bond market, where it enjoys a 26% market share and has lead managed deals for names such as City of Moscow, TNK, Sibneft and Gazprom. It is also among the leaders in syndicated loans, in which BNP Paribas, Deutsche Bank, SG, MNB and HVB also excel. Citigroup has done leading deals such as Norilsk Nickel’s $250 million loan, and Sibneft’s $510 million loan, which was voted “Deal of the Year” by Trade Finance.
Brunswick UBS wins the award for best M&A house. It advised Yukos on its merger with Sibneft, which admittedly was mainly worked out by the senior management of the companies themselves. It also advised Norilsk Nickel on its $341 million acquisition of Stillwater Mining, which was the first acquisition of a NYSE-listed US company by a Russian company. Norilsk says Brunswick was admirable in its professionalism, and says it is highly regarded by Russian companies for having stayed loyal to the market after the 1998 crisis. Brunswick also advised Sinopec on its $615 million acquisition of BG’s interest in the North Caspian Sea project.
Aton Capital wins the best equity house award as it has progressed from mid-tier broker to one of the top three brokers on the Russian stock exchange. Aton has not been compromised by the conflicts of interest that have affected some brokers, nor is it a big proprietary trader. It underwrote the first Russian IPO in mid-2002, for RBC, and Russian stock market participants also recently nominated Aton’s Steven Dashevsky as the best analyst on the exchange.
United Financial Group wins the award for best local partner thanks to its strong results in equity and M&A, where it has managed to edge past long-term rival Renaissance Capital. In equity, UFG was second in trading volume, according to the RTS. And in M&A, it managed to win a mandate to advise BP on its deal with TNK, as well as being co-manager for LUKoil’s ADR placement on the London stock exchange in 2002. Deutsche Bank is rumoured to be interested in buying a stake in UFG, as shareholder and former finance director Boris Fyodorov says he wants to sell his stake to return to politics.
