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Russian investment banks scrabble for a strategy

Western investment banks are competing to acquire Russian investment houses, while the chief executive of VTB, the country’s second-largest bank, is prioritizing either the acquisition of a local investment bank or the establishment of a partnership with an international player. But can domestic banks successfully compete with their international rivals in the longer term? Kathryn Wells reports.

VTB CHIEF EXECUTIVE Andrei Kostin is trying to juggle priorities. First among these is the bank’s initial public offering, slated for May, when it hopes to raise about $4 billion through a dual London/Moscow listing.

At the same time, he is on the lookout for domestic investment banking assets to acquire, to complete what he sees as the final piece in the jigsaw puzzle of VTB’s activities, after several years of extensive acquisitions.

Prominent among these was VTB’s enforced acquisition of Guta Bank during a banking sector liquidity crunch in 2004 and its transformation into VTB24, the bank’s retail arm. Last year VTB also increased its holding in St Petersburg-based Promstroibank to a majority stake, boosting its presence in the northwest of Russia.

The acquisition of an investment banking target is likely to be VTB’s final major purchase for the foreseeable future. According to Kostin, it is talking to three firms about possible acquisitions, and a further two houses about developing an investment banking partnership. Proceeds from the IPO could be used partly to finance such an purchase.

Any acquisition would follow hot on the heels of last November’s rebranding of Moscow Narodny Bank into VTB Europe, whose role Kostin sees as an “investment boutique, which will concentrate its efforts on Russian clients approaching the European markets, and [which] will act as an investment pad for Russian clients who plan to operate in Europe and beyond.”

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