Unlike nearly every other former Warsaw Pact country making the journey from central planning to a market economy, Russia has decided to shun the overtures of foreign banks and build up home-grown financing institutions instead.
But the tide seems to have turned and in the wake of recent wobbles a flood of foreign banks has arrived in Russia, announcing buyouts and tie-ups with leading Russian financial institutions.
A few tie-ups between Russian and foreign banks have already been completed. Swiss bank UBS bought a stake in local Russian investment bank Brunswick Capital Management before the 1998 financial crisis and in August moved to buy out its local partner’s share. Deutsche Bank cut the first post-crisis deal in November 2003 by buying a 40% stake in leading Russian investment bank United Financial Group for an undisclosed sum.
However, the pace has suddenly picked up. Credit Suisse First Boston relaunched its brokerage operations at the end of 2003, suspended after the 1998 crisis. Other banks, such as Merrill Lynch, Morgan Stanley, Citigroup and Sweden’s SEB, all have definite plans either to open new offices or expand existing tick-over operations.
Deutsche is moving fastest, saying in August that its mutual fund management arm, DWS Investments, one of the biggest asset management companies in Europe, would also open an office in Moscow. DWS, with e132 billion under management in 11 European countries, now intends to offer its services to the growing ranks of rich private customers and leading Russian companies.
German bank Dresdner Kleinwort Wasserstein has also announced plans to launch a brokerage in August. Hansabank, the leading pan-Baltic bank, which is controlled by Swedbank of Sweden, also said in August that it would open a subsidiary in Russia and has started recruiting staff. The banks will start by serving existing clients, Russians that trade with the Baltic states.
All of these banks are hoping to cash in on booming corporate business but after six years of rapidly rising incomes the big prize on offer is Russian retail. Mortgage and insurance reforms will be the big financial reform topics for this year and the consumer loans business exploded at the end of last year.
Established in 1996 in Russia, Austria’s Raiffeisenbank is the market leader. Although small, it is one of the most active players on the retail market, targeting sophisticated middle-class customers who want a bank account that offers more facilities than just paying the gas bill every month. In March it started branching out by buying Russian pension fund Dobroe Delo from industrial group Interros, which also owns Rosbank.
Citibank has been present in Russia since 1993 but has been aggressively expanding its retail services recently. The latest addition to the family was a branch in St Petersburg.
The crisis was a buying opportunity for others that had been hanging back. BNP Paribas bought a major stake in leading consumer loans provider Russky Standart bank as the dust began to settle at the end of July: BNP’s retail banking division, Cetelem, bought a 50% stake in the holding company that owns 90% of Russky Standart for an estimated $50 million to $125 million. Another 6.4% belongs to the International Finance Corporation.
?The alliance with Cetelem will allow [Russky Standart] to reinforce its position as the leading consumer credit institution in Russia, accelerate its development and further expand its portfolio of financial services,? BNP Paribas said in a press release.
A mere two weeks later, GE Consumer Finance (the consumer loans arm of GE Capital), the world’s largest consumer finance company, announced that it would buy Delta Bank, a leading Visa credit card issuer, for an estimated $100 million to $120 million.
?We believe we have found an excellent vehicle to become an immediate and significant participant in the early stages of the development of the Russian consumer finance market ? a market that is seeing exponential growth and one which has great potential,? says David R Nissen, GECF president & CEO.
Delta Bank was founded in 2000 and is partly backed by the US Russia Investment Fund, a semi-state fund to promote free markets. The bank now has branches in seven Russian regions.
?These two deals clearly indicate that international banks and consumer finance companies are overcoming concerns about any ongoing Russia-related risks surrounding the Yukos affair,? says Andrew Keeley, a bank analyst at Renaissance Capital. ?Instead they see the huge potential for consumer finance in Russia given such a buoyant macroeconomic environment, and such low levels of consumer indebtedness ? about 2% to 3% of GDP compared with over 50% in the EU.?
