Men walk past the headquarters of Sberbank in Moscow. The country’s largest lender recently cut seven bankers in its London office, reducing staff there to about 40.
Bloomberg/Moscow
Russia’s biggest lenders are scaling back their London investment banking ambitions as sanctions curb deal-making and deter clients from trading with them.
OAO Sberbank, the country’s largest lender, recently cut seven bankers in its London office, reducing staff there to about 40. On Wednesday it said it will also cut management roles in response to the economic slump. VTB Group, the country’s second-biggest lender, continues to reduce personnel in London after cutting 55 jobs in Europe last year, starting off 2015 with a workforce of 425.
Even some Russian lenders not sanctioned are retrenching. Alfa Bank, the firm backed by billionaire Mikhail Fridman, has cut headcount in the British capital after shuttering its New York office. Otkritie Financial Corp, Russia’s fifth-largest lender, cut staff at its London brokerage unit in April.
European Union and US sanctions against Russia over the Ukraine conflict are hampering banks in ways that go beyond the initial design, which was to restrict their ability to borrow on international markets. Some fund managers are reining in other activities with Russian firms for fear of drawing regulatory scrutiny, according to three money managers who spoke on condition of anonymity.
“I’m not surprised big US and European funds won’t trade with Sberbank and VTB,” Tom Adshead, chief operating officer for the consultancy Macro Advisory in Moscow and a former portfolio manager, said by phone. “It could be used as a mark against them by regulators and they won’t get fired for not trading with them.”
The year-long curbs on trade and investment, along with high interest rates and a plunge in the price of oil, have pushed the Russian economy toward its first recession since 2009. For some, the end is not in sight.
VTB Chief Executive Officer Andrey Kostin warned last week that he doesn’t expect US sanctions to be lifted for another three years. The EU on June 22 prolonged its measures against Russia by six months to the end of January.
In expanding overseas, VTB looked to become a bigger player in emerging markets using London as a hub. Russian lenders have sought to build larger capital markets businesses to broaden distribution of securities to foreign investors.
Russian investment banks collected $69mn advising on mergers and securities sales through June 25, a 49% drop compared with the same period last year, according to data from Freeman & Co, a New York consulting firm.
Simon Cose, VTB’s London-based head of commodities trading, and Marcus Joachim, a trader, have both been listed as inactive since May, the UK Financial Conduct Authority register shows. Kostin had said on Bloomberg TV in April there would be no more cuts. Joachim declined requests for comment.
“While we acknowledge the uncertainties in respect of the geopolitical situation remain, the extent which these could affect the group’s results is not currently determinable,” Roger Munger, company secretary for the London-based investment banking unit, wrote in a UK regulatory filing on May 1.
The bank, which won’t give its current headcount in London, is now sub-leasing two floors of its main office on Cornhill near the Bank of England, according to the document.“We are planning projects aimed at better integrating our business processes in line with the current economic conditions,” Nick Hutt, chief executive of VTB Capital in the UK, said in an e-mailed statement. “We expect our headcount levels to remain stable in 2016.”
Oleg Ganeev, head of Sberbank CIB, said the bank is focusing the firm’s expansion on regions in Russia instead of abroad. It has offices in London, New York and Cyprus. Client and investor activity in London has slowed some, the bank said by e-mail Thursday. It said that was mainly because Russia’s slowdown has made international investors cautious.
While Russian assets have rallied since the start of the year, the penalties are taking a toll on the broader economy after locking corporate borrowers out of international debt markets.
“Sanctions are very significant in cutting the medium and long-term financing to the Russian economy,” Anastasia Nesvetailova, a professor at City University London’s Political Economy Research Centre, said by e-mail. “Nobody wants to be examined by the US authorities. The Russian market is not worth it at the moment.”
Otkritie, which hasn’t been sanctioned, reduced its equity staff in London. Andrew Gazzard, head of international repo, and Vinay Ruparelia, director of equity sales, were both listed as inactive in March, according to the FCA register.