Emerging Europe: VTB Capital back in hiring mode in London after three lean years
Leading Russian investment bank adds Israel to coverage list; India next target after Essar sell-side mandate wins admirers.
Russia’s VTB Bank is bulking up its international team again, three years after western sanctions and a domestic economic slowdown put a crimp in its global ambitions. The state-controlled lender has added four senior client bankers at the London headquarters of VTB Capital, its investment banking arm, in recent weeks.
A notable inclusion in the new arrivals is Ron Golan, a Morgan Stanley veteran who will be responsible for leading the bank’s first forays into the Israeli market.
Riccardo Orcel, deputy CEO of VTB Group and head of VTB International, says adding coverage of Israel is a natural step for a Russian investment bank. "As well as having among the highest investment banking fee pools in CEEMEA, Israel is a market that makes sense for us because it is also relevant to our home market," he says. "A lot of entrepreneurs who are based there have large holdings in assets in Russia. Many are first-generation Russian émigrés or have homes in both countries."
The other new hires will strength VTB Capital’s coverage of its current core markets in CEEMEA. Raymond O’Leary, who left his post as co-head of capital markets and treasury solutions for Turkey, Israel and Africa at Deutsche Bank in January, has taken over as head of African origination. He replaces Andrew Cornthwaite, who stepped down as head of both Africa and international global banking in November.
Cornthwaite’s group managerial role has been assumed by Orcel, who remains based in Moscow, but will henceforth spend more time at VTB Capital’s London base. Meanwhile, ex-Credit Suisse banker Milan Elezovic will focus on business origination in Romania and former Yugoslavia, and Alvaro Baranda Molina will cover clients across southern Europe. Molina, who joins VTB Capital from JPMorgan’s strategic equity derivatives team, will also work on creating structured equity solutions for clients, an area in which the Russian bank has been increasingly active in recent years. In December 2015, VTB Capital helped no fewer than three commodities firms delist their shares – Russia’s Polyus Gold and Uralkali, plus India’s Essar Oil. In all three cases, VTB provided cash to finance the take-privates as well as investment banking services. Orcel says this type of deal plays to VTB’s strengths as a Russian bank. "New regulation means the cost of capital for transactions in emerging markets is such that western banks either can’t afford to use their balance sheet at all in these markets or can only do very plain vanilla structures," he says.
This means VTB can pursue more lucrative business than its developed market competitors, he adds. "We have limited interest in joining syndicated loans to companies at the very low rates quantitative easing has allowed some banks to offer for the last few years," says Orcel. "We seek opportunities for higher yields, such as lending at the holdco level secured by shares of an unlisted company or by lending to more credit-intensive stories." The latter category presumably includes some of VTB’s sizeable bilateral loans to governments in Sub-Saharan Africa, such as the $535 million of funding provided to a state-controlled firm in Mozambique that came to light last year when the country’s finances went into crisis.
A more positive note was struck last autumn, when VTB made $3.9 billion of funding available to Essar Energy to restructure and refinance parts of the Indian group ahead of the sale of $12.9 billion-worth of its assets to Russian state-controlled energy giant Rosneft. VTB Capital also acted as sole sell-side adviser on the deal, which Orcel says has done much to raise the bank’s profile in one of its main target markets.
"The Essar deal has made a big name for us in India," he says. "We are seeing interest from many clients to work with VTB." This will be reflected in the next round of hires due to be announced by VTB Capital shortly, which will add two new members to its Indian coverage team in Singapore as well as one extra banker in each of Hong Kong and Zug, the firm’s Swiss commodities centre.
The hiring spree marks a change of direction for VTB, which reportedly slashed headcount in London and New York after US and European authorities imposed sanctions on the bank in 2014. Orcel plays down the cuts, attributing them primarily to the dramatic reduction in international business from VTB Capital’s core Russian client base.
"We reacted like all investment banks during a down cycle of business and then worked to prepare for the next phase in markets," he says. "Additional investment in the international operations was delayed by three years during the economic slowdown, but now we are back on track. We have hired some top people and we will likely continue to add top talent going forward."
The renewed focus on international business also reflects an awareness that VTB Capital’s recent dominance in Russia – where the firm has greatly expanded its market share as global banks have retreated and domestic deals have predominated – will be threatened by the resumption of global deal flow. "We have expanded our market share to over 50% in some products in Russia since 2014," says Orcel. "We know it will be impossible to keep that once the market normalizes, but we will benefit from the market being bigger again, and because we know this we are investing and hiring in order to stay ahead of our competition."