Russia’s VTB Capital Hits Fifth Avenue, Aims to Spread Further
Craig Mellow (Institutional Investor online)
Russia’s most dynamic investment bank, VTB Capital, planted its flag in America this month with an opening gala for its New York office. Up to 40 salespeople will soon be hard at work on Fifth Avenue flogging Russian stocks and bonds to U.S. investors who currently broke with the “usual suspects” on Wall Street, says Atanas Bostandjiev, who runs all of VTB Capital’s business outside of its motherland.
But that is just the beginning, declares Bostandjiev, a Bulgarian-born financier who formerly ran Goldman Sachs’ client business for Eastern Europe, the Middle East and Africa. His Russian state-owned institution’s ultimate ambition is to become a “global investment bank focusing on emerging markets.”
Well not quite global maybe, Bostandjiev clarifies. VTB Capital just wants to expand to countries where “Russia has historic proximity, or close geopolitical or economic ties.” Russia being a big place with a huge volume of foreign trade, that effectively means the whole world except Latin America. VTB sees a chance to muscle in as Western bulge-bracket banks, still licking their wounds from 2008 and the euro zone crisis, retreat from some far-flung markets.
VTB Capital has earned the right to some grand ambitions. The house took its present form four years ago when Andrei Kostin, CEO of No. 2 Russian commercial bank VTB Group, poached a few dozen financiers from the Moscow offices of Deutsche Bank and other global competitors. By investing while others scaled back after September 2008, and wielding the parent’s balance sheet and Kremlin connections, VTB Capital has emerged as the dominant local investment operation, topping league tables in every significant category for the past two years.
But its triumphant march into Manhattan is shadowed by two significant threats. The No. 1 bank in Russia, Sberbank, which is also state-controlled, has just crashed the investment banking party, too. In January, Sberbank acquired Troika Dialog, a leading Moscow brokerage that has long been established in the U.S. Troika went on a hiring spree of its own and will not let VTB Capital mop up American investors easily.
Nor is Russia exactly a hot investment destination these days. Despite a buoyant oil market, the Russian Trading System share index has lost more than 20 percent of its value over the past year. That’s worse than the MSCI global emerging markets index, which is off about 15 percent. Russian capitalists are themselves sending money out of the country in great quantities: Net capital flight more than doubled in 2011 to $84 billion, according to the Central Bank of Russia.
The market’s weakness was underscored by Alexei Ulyukayev, the CBR’s first deputy chairman who joined a panel of experts accompanying the VTB Capital office launch. “Investors are not yet ready to come to our stock market,” he declared flatly. “We have not been able to send a clear message that there are high returns for acceptable risks.”
Improving Russia’s investment climate will be “a marathon, not a sprint,” Atanas Bostandjiev admits. But even under current circumstances, Moscow’s Micex-RTS stock exchange is the ninth most active in the emerging markets, with daily turnover of around $36 billion, and at least that many Russian securities change hands on London exchanges. Brokering this flow is a valuable niche in itself for VTB Capital. One worth traveling to New York for.