Vivid Picture of Russian Finance Market – Where Are the Professionals?

THIS POST WAS ORIGINALLY PUBLISHED JUNE 28, 2007

Vivid Picture of Russian Finance Market – Where Are the Professionals?

Russian financial market is seeing a biggest ever change in its history. Recently PricewaterhouseCoopers released the data that within the next three years the volume of assets that are turned into private asset management shall increase 30-50% annually. National Association of Securities Market Participants (NAUFOR) reports that over the last six months the number of private investors in Russia increased from 350,000 to 500,000. This is a visible result of “people’s IPOs” in SBERBANK’s (RTC:SBER) case about 30,000 and VTB (RTD:VTBR) – over 130,000 private investors. NAUFOR further expects that by the end of 2007 there would be about 700,000 Russian private investors. Other stats data also show this trend: in Q1 2007 open mutual funds attracted about 15.8 billion RUR ($ 600 million) – 50% increase as compared to Q1 2006.

This stat data raises the inevitable question – who is going to manage all assets? I wrote earlier about the “War for Talent”, and the problem seems to be heating up every day. PricewaterhouseCoopers reports in its study that only 26% of 43 polled investment banks think that they will be able to fill their vacancies for the staff within the next three years. And more and more ‘white spots’ in the Russian financial market map are being filled up every day. When we look at the map we may notice that practically all major players are already here: JPMorgan (NYSE:JPM), Merrill Lynch (NYSE:MER), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), HSBC (NYSE:HBC), Raiffeisen International (WBAG:RIBH), Societe Generale (OTC:SCGLY), ICICI Bank (NYSE:IBN), Intesa (BIT:ISP), UniCredit (BIT:UC), Nomura (NYSE:NMR), and many others. Just this week it was announced that Toyota (TYO:7203) Bank officially received its license in Russia; we awaiting for Barclays PLC (NYSE:BCS) and Industrial & Commercial Bank of China (ICBC) (SHA:601398). However, the share of foreign capital in the aggregate capital of Russian banks is 18.3% ; since the beginning of the year it has risen by another 2%; with 3-4% expected increase by the end of 2007. This week it was reported that VTB (RTD:VTBR) is seriously considering establishing their own investment banking division and this is not cheap – experts believe that the bank will spend at least $ 100 million. And German BayernLB Bank announced this week about opening its office in Moscow.

I mentioned earlier about good life of Western investment bankers in Moscow, and I guess this will continue for a while. Russian new business elite is still growing and the lack of qualified experts here in Moscow is evident. According to some experts the investment managers in Moscow are overpriced – in the last year the salaries saw 50% increase. And the “War for Talents” is in full swing. Almost every bank announced their intension to boost their staff in Moscow. Recent battle reports come from Renaissance Group that has some new people on board: Richard Bruens, Executive Vice President and Head of Investor Relations at ABN AMRO (NYSE:ABN), is now on the Group’s Executive Committee as Head of Strategy, Communications and Investor Relations; Petri Kivinen, the global head of debt capital markets at Dresdner Kleinwort, will join the RenCap’s emerging markets investment bank.

 

Vivid Picture - Update with Compensations

VEDOMOSTI DAILY released a report today “Investment banker – Sounds Expensive” which has some interesting numbers. It cites the manager of one of the headhunter companies: “ there are lots of publications that create excitement for the issue – many calls come from New York - the people want to go to Russia. They think that you get money for nothing. On the contrary, the selection is quite tough: there is a need for experience of working in Russia, understanding of clients and “international class”. The paper cites numbers for annual compensations in Top 10 investment banks:
- Managing directors/heads of investment banking divisions: $0.8-3.0 million
- Executive directors/ heads of back office: $250,000-500,000
- Heads of asset management divisions: $0.6-1.2 million
- Heads of securities trading divisions: $0.6-1.2 million
- Directors of corporate finance: $0.5-1.5 million
- Heads of analytics departments: $0.6-1.5 million 

Some other calculations reported by VEDOMOSTI:
For Renaissance Capital the average annual compensation of the Board members is over $ 2.0 million, while for an average employee the monthly compensation is $ 20,800. For Troika Dialog the average monthly compensation for the employees increased by 30% as compared with 2006, and is $ 16,400.

This situation, according to daily, greatly surprises headhunting agencies. As an example Ed Kaufman that joined Alfa Bank was guaranteed annual compensation of $7-8 million. And last year Goldman Sachs, (NYSE:GS) was stunned to hear suggestions of annual compensations of $ 2-3 million from securities salesmen (from URALSIB (RTC:USBN) and Alfa Bank) interviewed by them. Raiffeisen Bank (WBAG:RIBH) for the last 24 months fails to find a candidate for the head of brokerage division with compensation of $ 500,000 per annum.
VEDOMOSTI cites the manager of headhunting agency that there are banks that still are in the process of composing their teams (Lehman Brothers (NYSE:LEH) and Nomura (NYSE:NMR), just for example) – and this would further lead to more competition in compensations.