Russian VTB knocks at door of bankings premier league
The global financial crisis is a debacle that most of the world's bankers would gladly forget. The fall from grace of the likes of RBS, UBS and Citigroup - not to mention the disappearance of investment banking titans such as Bear Stearns and Lehman Brothers - has profoundly damaged confidence in the global banking system.
And it is becoming clearer every day that what remains of the old order is set to experience further significant change.
Nowhere more so than in Russia. At the height of western financial hegemony it was assumed that it would be the established giants of Europe and the US
who would set the pace in Russian banking, from the street right up to cutting-edge corporate and investment banking. Wasn't the country's 1998 banking crisis proof of just the kind of financial disaster that only an incompetent former communist state could visit upon its citizens?
But in 2010 the state of Russian banking could hardly be more different to that predicted a decade ago. Take, for example, VTB, the state-controlled universal banking group that is now Russia's second largest player by assets. Under its current management team led by chief executive Andrei Kostin, who took the reins in 2002, VTB's development has been remarkable.
The speed with which he and his colleagues have added a successful retail banking franchise to an already sturdy corporate business has been impressive enough. But it is the stunning performance of the investment banking arm from a near standing start in 2008 -in just two years it has blown away the competition on Russian deals - that has caught the eye of the wider world and signalled VTB's potential as a genuine universal banking contender capable of competing with the old guard.
Envious, usually non-Russian, competitors gripe that VTB simply has the Russian government to thank for its turbocharged development. And with 85.5 per cent of the group's shares in state hands even after a successful 2007 listing, a handy injection of capital around the time of' the financial crisis and the not so tacit backing of prime minister Vladimir Putin, they certainly have a point. But only up to a point. After all, with vast swaths of the west's banking system avoiding oblivion only thanks to massive state intervention or even nationalisation, it is hard to criticise the Russian government for deciding the time is ripe to champion one of its own!
Other than reassuring investors that they can avoid being "invited" to do too many favours for the state at the expense of good business practice, the next big test for Mr Kostin and his team will be how to take the bank's universal model a further step forward. Any move is unlikely to involve large scale international expansion.
Then again, there is still huge untapped potential in the bank's back yard, particularly with the emergence of a sizeable Russian middle class, many of whom are already in the sights of VTB's retail banking network. Mr Kostin could do worse than to target the insurance and consumer credit sector since these supply the products and services middle class customers will increasingly seek. They are also businesses where friends in high places will presumably be keen to see a strong Russian player making its mark, and it would be most surprising if Mr Kostin and his team were not already well advanced in- planning a strategic move into these two new sectors.
Alexei Kudrin, Russia's finance minister, also suggested this week that the government could sell part of its VTB stake before the end of this year if market conditions were favourable. The bank would thus be added to the list of some 11 large state companies which the government has already targeted for partial privatisation. Selling a 10 per cent or 15 per cent stake in VTB would make sense. The government would continue to retain control hut it would still help reinforce the credibility of the bank's management and, above all, send a positive signal of Russia's willingness to make its system more open to international investors.
VTB's continued rapid rise is clearly an important development for a modernising Russia. But it is also instructive at the global level. The Russians are not alone in concluding that a crisis born in the US and Europe has opened the door to the global banking premier league.
Brazil, China and India are to varying degrees already moving in a similar direction. The crisis has shown banking to be no less strategically important for the emerging powers than oil, gas and electricity. US and European bankers should prepare for change. The Russians are coming and they are not alone.
Source: Financial Times
Date: 10.09.2010 [ID: 262]