Russia’s next-generation investment banks muscle in
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A new generation of firms are seeking market share from more established players in an already crowded investment-banking scene.
Gazprombank, Russia’s third-biggest bank, is expanding its capital markets franchise under Denis Shulakov.
Year-to-date, the state-owned bank was second in Dealogic’s Russia Eurobond league table, rising from sixth the year before. It was not in the top 10 in 2011.
“We are building up a full-service capital markets position in DCM, ECM, convertibles and equity-linked deals, sales and trading, research and brokerage,” says Shulakov, previously at Barclays.
The bank ranks fourth in Dealogic’s overall investment-banking league table for 2013 year-to-date.
Hires at director level or higher in 2013 at Gazprombank include: Jonathan Segal, focusing on the Eurobonds business, also from Barclays; Michael Hammond, to open and build the Hong Kong office; and Igor Donnio, in equity capital markets, previously at Goldman Sachs.
Otkritie Capital will perhaps be put in a similar situation, after parent company Otkritie Financial Corporation’s acquisition of Nomos, Russia’s sixth-largest bank, and now Petrocommerce, previously the bank of Lukoil. These buys could make Otkritie Russia’s biggest privately owned bank.
Otkritie Capital’s CEO Nikolay Katorzhnov
“For capital markets deals, we’ve got the corporate relationships and the expertise,” says Otkritie Capital’s CEO Nikolay Katorzhnov. “Now we need to build up the distribution platform. We’re hiring fixed-income sales people to cover London and New York, to gain a bigger share in international DCM.”
Otkritie ranks third-top stockbroker at the Moscow Exchange, but Katorzhnov says he is not targeting equity as much as debt capital markets, as he says international investor appetite for Russian stocks remains low. He targets a top-15 position in the Russian Eurobond market by autumn 2014.
He says: “Nomos is the balance sheet for Otkritie’s corporate and investment bank. I’m an employee and essentially the head of the investment division for Nomos. We’re trying to blur the boundaries and find synergies with the corporate bank, in areas like currency hedging.”
Since the crisis, Otkritie and BCS – which ranks top at the Moscow Exchange, partly thanks to its retail network – have made money setting up electronic direct market access (DMA) systems. Due to more competition, margins have thinned in DMA, says Katorzhnov, but he says Otkritie still seeks to develop the DMA business.
Katorzhnov says the majority of Otkritie Capital’s profit today comes from offering repo financing, for example to family offices seeking high returns on invested capital via the bond markets. “[Repo financing] is a very profitable business, with limited risk,” he says.
BCS, which opened its London office in 2012, is also focusing on the repo market, says Roman Lokhov, global markets CEO, and previously CEO of Otkritie Capital. Lokhov moved to BCS with some colleagues two years ago. He says equity trading only accounts for 10% of his profit.