Euromoney Awards for Excellence 2004
Best bank
MDM Bank Best bond house
Trust Investment Bank
Best equities house
Troika Dialog
Best M&A house
Alfa Bank
The Russian banking sector has been particularly active in the past 12 months, with the first half seeing some acquisitions, and the second half some liquidations. In July 2003, Rosbank bought OVK, the retail bank that was left over from SBS-Agro, which was once the second-biggest bank in Russia but then became the biggest bankruptcy in Russian history in 1998.
The acquisition gives Rosbank a network of 350 branches, as well as a strong consumer loan business.
NIKoil, once a voucher fund for LUKoil, also took a bold dive into retail banking with the acquisition of Avtobank and Uralsib. The latter bank was the fifth largest in Russia. The new bank, to be called Uralsib, will have a network of about 500 branches.
Both these banks are likely to become serious players as universal banks. Both can combine a good branch network with corporate and investment banking expertise. For example, NIKoil can use its branch network to distribute its mutual funds, for which it is the market leader in Russia.
The consolidation of these new acquisitions will perhaps take as long as 18 months. But the fact that oligarchs such as Vladimir Potanin are willing to spend $200 million to move into retail banking underlines how strong the expected growth in this sector is.
Even Renaissance Capital, an elite local brokerage, has moved in for a piece of the retail pie, via its new consumer finance business. It wants to emulate the success of consumer finance specialist Russian Standard Bank, which has posted astonishing returns since it was set up in 2001.
At the other end of the market, some banks have been forced into liquidation as the central bank tightens reporting requirements before the bank deposit insurance law is introduced.
Sodbiznesbank and KreditTrust, the latter a relatively well known bank that had recently gone on a big hiring spree, went bust in May and June. At least one more bank is likely to follow suit over the summer, although analysts think a systematic meltdown is unlikely. Nonetheless, further consolidation, perhaps through more acquisitions, looks probable over the next year.
There are even signs the government could be about to push forward with bank reforms.
Prime minister Mikhail Fradkov told a recent conference that ?the development of the banking system is our most important task?. Whether this means finally reforming Sberbank, the state banking monopoly, remains to be seen. Standard & Poor?s recently said it was unlikely to raise Russia to investment grade until the government made more progress with banking reform, which might been a spur to the government?s actions in this sector.
All these moves address the fact that the banking sector is about to move to a tougher business environment, and banks need to be positioned to adapt to this ? in finding financing, attaining high standards of corporate governance and putting out a strong enough product offering to attract the retail market.
An indication of increasing competition was Alfa Bank?s dismissal in March of its head of retail banking, for failing to expand the bank?s share of retail deposits. The leading bank?s 24-hour chain, Alfa Express, has notoriously long queues, as Alfa?s president, Pyotr Aven, admitted. Although its retail business is not growing as fast as it would like, its investment banking business has had a good year, particularly in M&A, where it wins the award. It did 12 deals for a total of $8 billion in 2003. Troika Dialog did more deals, but for less volume.
But, for the second year in a row, MDM Bank wins the best bank award. Although Alfa Bank?s profits have stayed fairly steady, MDM?s grew by 76% to $194.9 million, boosted mainly by fixed-income proprietary trading but also through a 9% growth in net interest income.
The bank remained the leader in forfaiting, trade finance, FX, commodity derivatives and silver trading. It was the number two house, after Trust Investment Bank, in arranging rouble bonds. It set up a corporate finance team that rapidly won business, advising on $1.9 billion in deals. In April, it also lead managed the largest IPO since 1998, of 23% of jet manufacturer Irkut, for $127 million, which was a very positive transaction for Russian equity capital markets, considering Russian companies have tended to opt for foreign listings.
MDM has continued to be innovative in its own financing, which is a key factor for how competitive Russian banks can be.
It reopened its $125 million Eurobond for a further $75 million in May 2003, making it the largest such issue for a Russian private bank. It also set up a short- and medium-term loan participation note programme, under which it can raise anything from a seven-day to a five-year loan. In April 2004, it drew $160 million from the programme.
MDM, Alfa, Uralsib and Rosbank have all said they are interested in attracting foreign equity investments. Vneshtorgbank is also set to be privatized, which could attract foreign capital. The question for the next year is which banks will be first to attract investment, and what will they attract.
Euromoney?s bet is that MDM or Alfa will be first, with perhaps MDM the first to attract a minority investor but Alfa the first to sell a controlling stake. A source at Alfa tells Euromoney that the group wanted to sell the bank this year, but that seems ambitious.
As far as likely investors are concerned, Citigroup is an obvious candidate, as is HSBC, which has been advising Rosbank on its new acquisitions.
Deutsche Bank has been remarkably uninterested in acquisitions in the whole of CEE, though maybe its purchase of 40% of UFG earlier this year will give it the stomach for a more sizeable purchase.
For the local brokers, last year was phenomenal, with the RTS index up to record levels and the rouble bond market booming. However, it could have been better.
The concern is that the Yukos trial is now holding back the RTS and stopping further large M&A deals like the BP-TNK deal. The danger for local brokers is that, with global risk appetite declining, foreign investors won?t hang around to understand the political complexities of the Russian market.
Nonetheless, three optimistic signs on the Russian stock market are the likelihood of the liberalization of Gazprom shares soon; the appointment of a well-respected new stock market regulator, Oleg Vyugin; and the possibility that it will become much easier for investors to trade directly on Russian exchanges soon.
Troika Dialog wins the award for best equity house. It had the highest turnover on the RTS last year, as it did the year before. It also has a highly respected chief economist in Evgeny Gavrilenkov, and an excellent chief strategist in James Fenkner. Renaissance Capital also deserves the plaudits for its research ? in Institutional Investor?s first Russian research poll, it won eight out of the 11 categories for best research analysts, including best strategist for Roland Nash. It also lead managed the $50 million IPO of Kalina, a fast-growing cosmetics company.
Finally, Trust Investment Bank wins best bond house for its leadership in rouble bond arranging. It has arranged 14 deals in the past 12 months and seems to have avoided the plague that has descended on other parts of the Menatep/Yukos family. Last year is likely to outperform this year in terms of rouble bond new issuance, as investors become more selective after a default by Sodbiznesbank, the liquidated bank mentioned earlier.
