Corporate Communications

Capitalism not a la Marx

12 August 2008

Interview of Yuri Soloviev, CEO of VTB Capital, to "Itogi" magazine

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"Competition is normal for the market. But so are the preferences granted to national players… At the moment, the West does not see Russian financial institutions offering any sort of overt threat, although we should not rule out that this attitude will change, and to us as well. This is life,” said Yuri Soloviev, President of VTB Capital.

A new financial powerhouse is coming to the Russian financial market, VTB Capital. Led by Yuri Soloviev, a banker with a long track record, who was until recently the first Deputy Chairman of Deutsche Bank Russia. He moved to VTB last spring to start from scratch in effect, to build an investment business for the VTB banking group. Illustrating the serious intent of the new business unit, the annual Financial News rating ranked Yuri Soloviev, the President of VTB Capital, one of the TOP 10 of Europe’s best investment bankers. He turned out to be the unique Russian representative on this prestigious list.

- Do you happen to lend money, Yuri Alexeevich?

- Would you like to borrow some? Privately, of course, I can lend you some cash. In a friendly, neighborly or cousinly way. I wouldn’t even charge you interest, if you can believe it. I‘m reminded of the famous British saying that bankers are like people selling umbrellas on a clear day.

- Well, originally, VTB looked like it was going to buy - not umbrellas, but rather Troika Dialog and Renaissance Capital. Then, plans changed and it was decided to develop an investment bank of its own. Why did they abandon the original design? You got split on the price?

- It’s hard for me to answer your questions, since I was not yet working at VTB at that time, and therefore I was not part of the project team. I would point out that experienced managers always have several options at hand, including both developing the corporate business organically and acquiring existing companies. Practice shows that major takeovers often end up with the total value of merged companies being lower than their individual values previously. No synergy takes place. The risk of banking institutions’ amalgamation is fairly high. The key factor is that, as a rule, professionals flee the bank, which has been “eaten up” by a larger one. And adequate replacements for the lost personnel may not be found at once.

- It looks like it’s better to build a house from the foundations rather than take on a stranger’s circumstances.

- Each situation is individual; on each occasion one has to consider a variety of factors. Not incidentally, many global banks have sought over the last decade to build up their own investment business. But no one has succeeded, in effect, except for Deutsche Bank. One can only guess the causes of the failures: either the mandate was wrong, or the wrong people were taken on, or the budget was short, or the market did not favor them.

- Does this represent a threat to VTB Capital?

- The objective given to us was clear, the team is professional; and we’re making good use of the current situation in the labor market and we continue to invite high-class specialists to join us; the budget allotted to us is generous… 

- Half a billion USD was quoted…

- Sure, we would like to spend much less and return the advance in short order. We’re counting on self-sufficiency in as early as a year. On the other hand, we have to go first to a “rookie training school” in a real combat-style environment: the global crisis will reflect on the market situation. However, our nine top managers’ track records account collectively for more than a century of investment banking activities where the relevant experience is highly important for setting goals correctly and accurately assessing potential risks. Also, such an impressive budget, granted to VTB, helps us to feel confident, particularly at the present time when many financial institutions are paralyzed by lack of capital. Banks are not in a position to scale up their assets at the same rate as previously. In effect, they become uncompetitive a priori and drop out of business. We exist in a completely different context: we are increasing our market share and managing many deals across a variety of areas.

- Raise the curtain a bit, Yuri Alexeevich, please.

- Naturally, some information is confidential, so I cannot tell you everything. Yet I would sketch out some reference points for you to better understand the scale of our activities. Recently, we closed a SPO deal for the Razgoulyay agro-industry holding company to have raised USD295,000,000. We are working on another three transactions in the equity markets which are to be realized in 2H 2008. In London, our subsidiary, VTB Bank Europe, issued USD150,000,000 worth of Promsvyazbank Eurobonds. A deal was closed on securitization of the Trust factoring company’s debt portfolio, with the floating rate bonds issued at the value of RUR4,012,000,000.

- Did I understand properly that you are not going to confine yourself solely to the Russian market?

- I must draw on a football metaphor: to win the European Cup, you first need to win your national one. Currently, we are focused on our business inside Russia. The next step will be the C.I.S. and in the future, we would like to become the partners of local investment interests all over the world. 

- If a speculative tournament table of Russia’s investment companies could be devised, where would you place yourself?

- I think somewhere in the middle. But remember previously VTB was not playing on this field at all. As we are just beginning, thus it is interesting to observe the surge dynamics. In Russia, banks still mostly prefer capital intermediation, while our philosophy is risk intermediation. As a matter of fact, this exact way of doing business is currently common in the West. 

- …where they are waiting for you with open arms...

- Competition is normal for the market. But so are the preferences granted to national players. It should be looked at rationally, with no debate about free trade and an open economic environment. It is clear, for instance, why the West fears a stronger Gazprom. It is already one of the largest companies in the world in terms of capitalization; and its resources and potential are enormous. It’s hard to compete with such a gigantic corporation, so they try to beleaguer it, to restrain its freedom of maneuver. At the moment, the West does not see Russian financial institutions offering any sort of overt threat, although we should not rule out that this attitude will change, and to us as well. This is life.

- By the way, Yuri Alexeevich. How does one become a banker?

- I was born on April 13, 1970 so, naturally, I was named after Yuri Gagarin. My father is career officer, a lieutenant colonel in the reserves. When I was born, he was stationed in Ulan Bator, Mongolia, our neighbors.. All through my childhood, my mother and I followed my dad from one garrison to another, making no less than a dozen moves. I wanted to maintain our illustrious military dynasty, but my vision failed me; I did not pass the medical board to be eligible for a military college. At first, I studied to become an engineer, but discovered it wasn’t my cup of tea. I quit the university, did my army service and then went to Moscow to enter the Plekhanov Russian Academy of Economics. I took my exams with no particular problem and entered the global economic relations department. During my university years, I did a half-year study tour at the Copenhagen business school. After graduating from Plekhanov Academy I was employed by Incombank. Later, I took a fancy to extending my banking studies in the West and so I left for London.

- Just like that? Spread your wings and flew away?

- It took me a while, almost a year, to find a serious job abroad until I received an invitation from Lehman Brothers, a major US investment bank where I worked for about seven years. Starting from a low-profile position, I advanced quickly and became an executive director. Only the managing director is higher at investment banks. Possibly, good luck smiled on me.

- How did the Londoners take to a Russian manager?

- When I first came to London, there were few banking professionals from Russia. Then, an intensive inflow followed, which was superseded by a similar stormy outflow after the 1998 default. At that time, many preferred to return to Moscow, after finding no prospects in the West. At that time, many people had just begun to feel at home, arranged their everyday lives, taken out home loans… That crisis bypassed me, because even in those dire straits I was still making money for the bank and thus finally led the trade operations department for Lehman Brothers’ local capital markets. At the same time, I was doing Executive MBA studies at the London School of Business. Those studies destroyed my weekends for two years, but I absolutely do not regret my days off spent at the computer. The learning expanded my professional horizons and re-affirmed my idea that investment was very important for economic development.

- Having worked up your appetite, you moved from Americans to Germans?

- To be fair, Deutsche Bank should be called not German, but global, since its capital is spread all over the world. There I led the investment block for Russia, C.I.S. and the Baltic nations. 

- ..while still residing and working in the UK?

- Traditionally, the head office of Deutsche Bank is located in Frankfurt while its investment unit is in London. In point of fact, I moved to Moscow in October 2006. Previously, I had shuttled for four years between the two capitals and made my home at several Moscow hotels where I stayed, sometimes for months. At one point in time, I got tired living out of a suitcase, because, apart from London, I also had to fly to the USA, South-East Asia, Africa and other remote regions. Admittedly, the life of an investment banker is attractive precisely for the frequent trips all over the world. Well who would reject adventures? But honestly, a nice hotel in Johannesburg is little different from the same hotel in Melbourne, Singapore or New York. As a rule there is never any time for sightseeing: after talks and useful meetings, you rush to the airport. In short, on my arrival at Deutsche Bank, I got down to my favorite business, i.e. developing the Russian segment to make it attractive for investment. We began from little, but we expanded our presence in the market through working with shares, bonds, currency trading, lending, interest rates, securitization, providing real estate loans, and consulting. We built up a good team, which has held a strong lead over the past couple of years in the majority of investment banking segments.

- And you got into the TOP10 European investment bankers based on your performance at Deutsche Bank?

- If you read the Financial News rating criteria, you will see that it relates rather to my efforts at VTB.

- But you have worked here for only four months!

- As far as I understand, the selection criterion was based not only the past contribution into banking development, but also the capacity, the prospects of growth. No doubt what Deutsche Bank team has done over the last year did play its role in the final decision made by the Financial News experts. Yet no less important are the horizons opening up before VTB Capital.

- Are there similar ratings in other areas?

- In the West, for example, it is common to make lists of the leading modern artists. Even, so to say, their intrinsic value is determined by the arts market.

- And the bankers there are converted into hard currency?

- There is no such practice in the financial market.

- Although the demand for highly-qualified “umbrella sellers” remains high?

- Real professionals are always in demand. And this is true not only for the banking sector. Certainly, it’s gratifying that VTB management took an interest in my services. It would have been bizarre if I had refused such a large-scale and ambitious project as developing a major investment bank, effectively from scratch. I think many would agree with me that our country is currently in a period of resurgence and bloom. It is true for industry, economy and even our achievements in sports. If you take a look at finance, you’ll see there several major and reputable Russian business banks. But a serious investment team with the ability to defend the national colors internationally has not existed until recently. Meantime, the investment business is a highly prospective area. Its market share is quite tangible already now and it will grow further as industry develops.

- Where is it more interesting for you professionally: here or abroad?

- I have always worked in the developing markets, so it has never been boring. And it is incredibly exciting currently in Russia. Over the last half-year, an investment bank has not been built anywhere else in the world. But we’ll do it. I’m saying it with full responsibility: come to us next October and you’ll see it for yourself. I sleep very little lately and I get up in the morning eager to get to my office quickly and get onto the computer. That’s real drive!

- Why do you need four monitors on your desk at the same time?

- IT’s not too many, considering the fact so many events occur in business and the investment banker must track, if not all of them, at least the main news streams and trading systems.

- I’ve just thought you might hang around on the Odnoklassniki web-wite (Ed.- Russian equivalent to Facebook)?

- I forbade visiting those sites when at Deutsche Bank. And also at VTB, when I saw how much working time is lost on that. You are welcome to correspond with your friends, but not at the expense of business. I also got registered on the Odnoklassniki web-site, but that is where I stopped.

- What if an old friend asks you suddenly for a loan just until his payday? 

- I thought we’d covered this: it’s no problem with me.

- You also might borrow by chance?

- I can’t recall doing that sort of thing. I’m fairly conservative in that sense. There is a notion of leverage in finance. In other words, borrowed capital must only strengthen owned capital. I’m very careful with managing liquidity, both that of the bank and in my personal life.

- Why?

- I try not to borrow. And frankly, there is no need. I have quite enough for my living. After all, you’ll agree that it would be strange for an umbrella seller to get wet in the rain…

 

By Andrey Vandenko

"Itogi" magazine, #32 (634), 04.08.2008


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