|
|
|
Last Updated: Oct 10, 2008 - 12:55:22 PM |
As Wall Street banking giants have fallen like dominoes, investment
banks here are struggling to adapt to the rapidly changing market
conditions, with a wave of consolidation and takeovers expected.
Investment banks will also have to shift away from lucrative but highly
leveraged deals where they risk their own capital in a primarily
consulting business model, including a greater focus on mergers and
acquisitions, senior bankers said.
Already, one major name, Renaissance Capital, has leapt into the arms
of a sugar-daddy billionaire, while troubled midsized player KIT
Finance agreed to a takeover Wednesday by state monopolies Alrosa and
Russian Railways. The sum offered was a nominal 100 rubles ($4), a
source at the bank said, Interfax reported.
Other banks say they either have already laid off staff or are starting
to do so.
While market players were hopeful that investment banking in the
country would eventually emerge from the crisis, they said the industry
would never be the same again.
"I don't think it's a good time to be an investment banker anywhere in
the world, and that includes Russia," said Roland Nash, chief
strategist at Renaissance Capital. "There are rumors about every single
investment bank in the world at the moment, including in Russia."
With the business of initial public offerings, traditionally one of the
biggest sources of income for investment banks, temporarily closed, the
trading divisions in losses, and mergers and acquisitions activity on
hold, many investment banks may find themselves idle.
"In the short term the capital markets are closed. Banks will
concentrate on other areas, such as M&A advisory or equity and bond
buybacks," said Pavel Malyi, head of investment banking for UBS in
Russia, Ukraine and Kazakhstan.
"The investment bank business model will change from a heavy
leverage-based [one] that relied on external financing and proprietary
trading to a more client service-oriented industry model," Malyi said.
In proprietary trading, traders play with the investment bank's own
money for profit, not with their clients' money, taking on any market
risks to the bank's balance sheet.
These trades are typically carried out with leverage and have been
responsible for high investment banking returns over the last few
years, as well as for the heavy losses.
The move toward far riskier, leveraged deals is a sea change from the
old-fashioned model practiced by investment banks until the late 20th
century, where storied institutions such as Goldman Sachs acted mostly
as trusted advisers to long-term clients.
"Some foreign investment banks may close their investment banking
divisions here until business resumes in order to save costs," said a
senior equity markets specialist at a Moscow investment bank. "It will
be some time before it becomes clear what will happen in the U.S.
financial markets and what will happen to global commodity prices.
Depending on this, the outlook for emerging markets such as Russia will
change."
The expert, who declined to be identified because of the sensitive
market situation, said well-funded Russian banks such as
state-controlled VTB could take advantage of a weakened sector to beef
up their investment banking arms.
Takeovers and Bailouts
The deal that saw billionaire Mikhail Prokhorov last month pay $500
million for half of Renaissance Capital could be followed by other
white-knight deals, but the prospects of other oligarchs coming in to
help out liquidity-challenged investment banks may be limited, given
the credit challenges that even the country's richest tycoons are
facing.
Troika Dialog managing director Andrei Sharonov, a former deputy
economic development and trade minister, on Monday said the country's
oligarchs are more over-leveraged than is widely discussed and may not
have that much bandwidth for buying up distressed assets.
Opportunities could open up for private equity firms, he said, as
businesses could be going cheap as owners look to raise cash.
State-controlled Sberbank and Troika Dialog released coordinated
statements last month in an effort to put a stop to snowballing rumors
that Sberbank was on the verge of buying the investment bank.
Sharonov reiterated that the investment bank was not looking to sell
any part of its business.
"We have been hedging our risks," Sharonov said by telephone.
Despite an influx of government money, the situation in the market has
not yet eased, Sharonov said, adding that acquisitions were now likely.
"The companies that have difficulties with refinancing their debts will
be letting portfolio investors in," Sharonov said. "The market is now
very interesting for private equity funds, whereas big businesses are
experiencing difficulties with liquidity."
Some bankers said that for the big foreign players in Russia, the
situation could yield opportunities.
"In tough times, investment banks are looking for markets that have the
potential for aggressive growth. From this perspective, Russia will
continue to be a lucrative market," said a London-based analyst for
Lehman Brothers, which after declaring bankruptcy last month handed
over its Middle Eastern and European business to Japan's Nomura for a
mere $2.
"There will be no retrenching from the Russian market," said the Lehman
analyst, who spoke on condition of anonymity because he was not
authorized to speak to the media. "We will definitely be [in Russia]."
Malyi, of UBS, said the Swiss-based bank will shut down most of its
commodity trading divisions globally, and will selectively reduce staff
in other areas, but he said the cuts would be fewer in Russia "as it
still poses significant growth potential."
"In times of crisis foreign players often return to their home base,
and it is conceivable that some of the big investment banks here will
do so. However, UBS does not have such plans," Malyi said.
Job Losses
Amid swirling speculation about the level of potential job cuts, some
Russian investment houses said they had started retrenching, while
others insisted they had no plans to do so -- and could even expand.
Sergei Babayan, a board member at MDM, said the bank was sitting on a
"liquidity cushion" of over $1 billion and saw opportunities on the
horizon.
"We retain our major focus on the capital markets and financing
businesses," Babayan said. "We see a lot of opportunities in the future
that would be concentrated in providing our clients with tailored
solutions both in the debt products area and in M&A and advisory."
The bank, however, has had to cut staff, he said.
"We have restructured our research department by closing down the small
equity unit ... as we do not oversee this kind of deals this and next
year," Babayan said.
Brokerage Antanta Pioglobal, which recently sold its asset management
business to Ivan Tyryshkin, a former president of the RTS stock
exchange, has reportedly cut 70 percent of its staff, although
employees could not officially comment on the issue.
While saying that Antanta will sell some of its assets, the group's
general director, Yevgeny Kogan, said the group has enough money to
cover its losses and meet its obligations.
Some of the biggest domestic investment banks may be way overstaffed,
while big state-controlled banks such as VTB and Gazprombank are set to
see their market share grow and may be looking to pick up hires from
those banks cutting back, bankers said.
"Our investment bank ... is beginning to develop in the new conditions
dictated by the market, which is a lot less competitive," VTB's press
office said in a statement Wednesday.
VTB has no plans to make any major acquisitions but has no problems
with liquidity and has no plans to lay off staff, the statement said.
Some banks said they had stopped hiring.
"We are not taking on any new employees," said Mikhail Sukhobak, head
of investment banking at financial company Otkritie.
While just a matter of weeks ago human resources departments at Moscow
investment banks were bewailing the dearth of qualified experts, that
deficit has turned into a glut.
Sense of Camaraderie
Amid the crisis, a new attitude can be seen among the city's bankers,
insiders said.
In Moscow's high-end watering holes "a bizarre sense of camaraderie"
has sprung up among those involved in what many perceive to be a
cutthroat industry, said one senior banker, who said he didn't want to
be quoted talking about off-duty colleagues.
"Investment bank employees all of a sudden seem very attached to their
jobs," said another Moscow-based investment banker, who said she wasn't
allowed to speak on the record about employment issues. "Six months
ago, turnover at banks such as UBS and Deutsche was very high, as
people were jumping for sky-high compensation packages at other places.
Now, everyone seems to be very satisfied with their jobs."
As they sought to put the best gloss on the "horrible, horrible"
conditions, bankers insisted that after Russia's many crises, the
sector was no stranger to turmoil and was thus well equipped to rebound.
"There is more expertise on dealing with crises in Russia than there is
almost anywhere in the world," said Nash, of Renaissance Capital.
Source:Ocnus.net 2008
Top of Page
|
|
|
|