Russian investment bank Renaissance Capital is back to profitability, after a debt restructuring and laying off around half of its workforce.
That is according to Alexander Merzlenko, RenCaps Russia president, named co-head of investment banking after the departure of chairman and co-CEO John Hyman in October.
We embarked of a major cost-cutting drive in the middle of 2012 and continued it in 2013 after a thorough review of the business opportunities and the resources we needed, says Merzlenko.
For the time being, the restructuring process, as well as cost-cutting, has been completed.
RenCap now has around 550 staff compared with around 1,200 at the peak in early 2012 and around 600 people in 2006, before it started investing in its African business. Front-office investment banking staff now number about 60, with roughly half working almost exclusively on Russia, says Merzlenko.
This [operational profit in 9M 2013 (Management Information System reporting)] was a major achievement: weve cut staff, sublet office space, and reviewed the IT and risk policies, focusing exclusively on the client business, he says.
|Alexander Merzlenko, RenCaps Russia president|
Merzlenko says: We want to be a leading emerging-markets player in CEEMEA. Thats why were growing in Turkey, for example. Its about following the needs of blue-chip international institutional investors. Before 2008, Russia was big and fancy enough as a market.
Now being a niche player in Russia isnt enough for these institutions. If theyre looking at emerging markets, they dont just want to know about Russia, or Africa. They also want to know whats the trade-off, for example, between retailers in Turkey, Russia and South Africa.
Renaissance Group restructured debt between late 2011 and early 2012, with the group owing money to the bank due to illiquid assets at group level. Monetized investments, including forestry in Russias far east, and minority investments in mines and the banking sector in Africa, have helped a return to profit in 2013.
Six years ago, RenCap stood in the middle of a booming primary equity market in Russia almost unrivalled by local banks, and a good distance ahead of all but one international bank, according to Dealogics ranking. New Zealand-born founder Stephen Jennings came to be known as the Kiwi Oligarch.
However, in recent years Russian primary equity market issuance has remained less than a third of 2007 levels. Trading volumes have also dwindled. In 2012, the groups financial situation got so bad Jennings had to sell his stake in the investment bank to billionaire Mikhail Prokhorov.
Since 2008, VTB Capital and later Sberbank the investment banking arms of Russias two biggest banks (both state-owned) have furthermore usurped RenCaps equity league-table pre-eminence among the locals. RenCap has fallen behind all of the big US investment banks in Russia.
RenCaps answer has been, and apparently remains, to diversify to Africa, especially Nigeria, where RenCap has won the biggest market share in equity trading. Merzlenko says RenCaps headcount in Africa, as in Russia, will probably remain broadly stable.
Africa is probably going to grow faster than Russia in terms of the overall fee pool in investment banking over the next few years, says Merzlenko. Russia is a very overbanked market in investment banking. Hopefully that will become less so in the coming years.
This year, and over the next few years, youre looking at a fee pool [in Russia] of about $200 million, in terms of advisory fees and commissions for primary equity and debt placements. We would target about 20% of that, but were not growing the team. The headcount will remain broadly the same.
A 20% share might be tough. During the past five years, RenCap and all the international banks have fallen behind VTB Capital in the Dealogics investment-banking revenue ranking. RenCaps share has fallen to the mid single-digits since 2009, even in the equity capital markets, its main traditional strength.
Were still making money trading Russian equities, which is quite rare in the market as commissions went down and trading moved to electronic platforms, says Merzlenko. In fact, Renaissance Capital is almost the only firm which earns money on this.