By Jake Rudnitsky and Anna Baraulina (Bloomberg) - As sanctions force Russia’s VTB Group to retreat to its home turf, a private broker founded in Siberia has seized the opportunity to expand into foreign markets and sell them Russia Inc.
VTB, long Russia’s biggest investment bank abroad, plans to cut its headcount by a third in London, from 250 currently, Chief Executive Officer Andrey Kostin said in an interview in St. Petersburg Friday. Part of that is due to the relocation of some lending activities to other offices in response to tighter capital requirements imposed by U.K. supervisors, First Deputy CEO Yuri Soloviev said separately.
Sanctions imposed in response to Russia’s role in the Ukraine crisis have made it harder for the country’s state- controlled banks to operate abroad and forced them to rein in their international plans. The latest cuts will leave headcount at VTB’s London office at one-third of its level before the annexation of Crimea in 2014.
At the same time, western lenders including Deutsche Bank AG, Royal Bank of Scotland Group Plc, Barclays Plc and BNP Paribas SA have curtailed their coverage of Russia as its growth has slowed well below the kind of rates traditionally demanded by global investors in emerging markets. According to data compiled by Bloomberg, bank analysts see gross domestic product growth stuck below 2 percent for the next three years. That’s giving BCS the chance to take a larger piece of a smaller pie.
“Russia isn’t booming, but with international players leaving the market and the biggest local banks facing their own issues, we have found a niche to grow in,” Lokhov told Bloomberg in an interview. The investment bank will grow by about 20 percent this year from 400 currently, he said. That will require, among other things, a move to larger premises in the City of London.
Despite the headwinds, BCS has flourished in the last few years: the number of domestic retail investors -- on whom it built its business -- is up by half over the last five years, according to Moscow Exchange data. The brokerage’s parent group has more than tripled its revenue since 2013, while net income rose nearly nine-fold to $113 million between 2013 and 2016, the most recent data available.
Things have gone so well that its distribution partner, London-listed credit-card issuer TCS Group Holding Plc, has now struck out on its own, developing a full-fledged broker after receiving a license in March. While the joint venture will continue to service their existing 80,000 clients, future growth will accrue to TCS alone.
BCS also faces competition at home from a bulked-up VTB, which this year merged its retail brokerage with its investment bank’s investment consulting, brokerage and asset-management teams. That created a unit that manages over 1 trillion rubles ($16 billion).
In that context, the relative lack of competition to sell Russia abroad is welcome. BCS bought the North American business of Alfa-Bank JSC in 2016 and is currently the only Russian lender with a seat on the New York Stock Exchange trading floor. Renaissance Capital, a competitor with an international footprint, has shifted its focus to other, ‘frontier’ markets while it braces for more anti-Russia sanctions from Washington. State-owned banks are, more broadly, returning home as sanctions make their life increasingly difficult. Sberbank PJSC announced last week the sale of its Turkish subsidiary for over $3.2 billion, intending to re-deploy its capital at home. And Sberbank and VTB have both started withdrawing from Ukraine, where their connection with the Russian state is toxic for their respective brands.
Another factor indirectly helping privately-owned BCS is the problems its state-owned competitors make for themselves. Sberbank roiled some clients last week by firing an award- winning oil analyst, Alex Fak, for a research note that claimed two of President Vladimir Putin’s close friends are the main beneficiaries of profligate investment by state-run Gazprom. Alexander Kudrin, Sberbank’s head of research, also left the bank as a result.
Sberbank Chief Executive Officer Herman Gref said Fak was fired for "factual errors". A Gazprom spokesman said it never asked for the report to be withdrawn. The incident nonetheless prompted criticism that Sberbank had sacrificed its researchers due to political pressure.
Kirill Tremasov, chief analyst of Moscow-based Loko-Invest, told Bloomberg:
These practices are vicious and far from the ’global best practice’ that we regularly say we are striving to adhere to at state-sponsored conferences. Such practices undermine investor confidence in Russia and, accordingly, our global competitiveness.
A message from management of BCS Global Markets
The continuously evolving nature of the global coronavirus situation has meant we at BCS Global Markets (BCS) are taking all necessary steps to keep business disruption to an absolute minimum.
Effective from today (Wednesday 18th March) employees from all divisions of the business based in our Russia, UK, USA and Cyprus offices who can work from home without creating any even minor possible risk for business continuity of the Group will be working remotely. It is very much business as usual at BCS. Our employees are equipped with secure access to our systems and will follow their normal working hours, keeping in regular contact with their colleagues and clients.
Despite ongoing disruption caused by COVID-19, we want to also assure you that following a sustained period of positive performance, our capital and liquidity position remains very strong. The business is well-placed to meet any subsequent financial challenges and will continue to go above and beyond for our clients.