Western Sanctions No Affect On Russian Banking…..International Business Revenues Still Going Up…..Of Course

Posted: November 4, 2014 in Econ 101, Free Trade, Sanctions on Russia Meaningless

SEE ALSO: U.S. Sanctions on Russia help Russians


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Russian Bank Shrugs Off Impact of Sanctions

VTB Capital Says It Is Outside the Eye of the Storm

The Russian government and central bank have vowed to provide capital to sanctioned companies such as VTB Bank.
The Russian government and central bank have vowed to provide capital to sanctioned companies such as VTB Bank.

LONDON—U.S. and European sanctions were supposed to deal a painful blow to Russian companies such as VTB Bank , a government-controlled lender that boasts a growing international investment-banking business.

But sitting in an oak-paneled office across the street from the Bank of England, Andrew Cornthwaite insists that isn’t the case.

“You can have a 30-second conversation with clients about most of these things,” says Mr. Cornthwaite, head of international global banking for VTB’s investment-banking arm. “Is anything stopping us from lending money? No. Financing? No. Advisory? Not an issue. Capital markets? Not an issue. So there isn’t really a debate to be had with clients.”

In August, the U.S. and Europe imposed sanctions against a range of Russian companies in the banking, energy and arms industries in retaliation for Russia’s role in the Ukraine conflict. The rules ban Western entities from providing equity or debt financing to several Russian lenders including VTB.

Outside experts say Mr. Cornthwaite and other Russian bank executives are putting a brave face on a situation that is almost certainly hurting their businesses.

“It is hard to see any optimism in these kinds of sanctions,” says Liza Ermolenko, an emerging-markets economist at research company Capital Economics. “The perception of Russian banks has been affected and they will struggle to find people who want to lend to them at decent rates.”

VTB Bank is Russia’s second-largest lender by assets. The Russian government and central bank have vowed to provide capital to sanctioned companies. VTB, 60.9%-owned by the government, in September received a 214-billion-ruble boost when the government converted earlier loans from another state bank into capital.

Earlier in October Andrey Kostin, VTB Bank’s chairman, said that as a result of the sanctions, initial public offerings and share and bond issues in the international markets are “being wound down significantly” and that the bank would have to cut some jobs.

But the international arm of VTB’s investment-banking unit, called VTB Capital, is outside the eye of the storm, says Mr. Cornthwaite. The investment bank’s ability to advise on mergers or debt issuance in international markets not impacted by sanctions, such as Asia or Africa, isn’t affected, he says. “Revenue numbers in both the percentage terms and absolute terms for the international business are still going up,” he says.

VTB isn’t the only one looking at the brighter side of the international clampdown. In September, more than 200 investors turned up at a London hotel to listen to Russia’s biggest bank, OAO Sberbank , pitch investments in Russia. “We may look back on this in a few years as being an opportunity to buy,” said Sberbank’s chief strategist, Kingsmill Bond.

The impacts of sanctions on the Russian economy were exaggerated, he said. For instance, Mr. Bond said he carried sanctioned cheeses, including Stilton and Parmesan, in his suitcase on a recent trip to Moscow only to find shops there already stocked.

Last week, European Union officials predicted that sanctions combined with plummeting oil prices would shave 1.1% off Russia’s growth rate next year. Meanwhile, the U.S. dollar has gained about 22% against the ruble since sanctions were imposed, squeezing Russian companies that have to pay debt in foreign currencies. (In a subsequent interview last week Mr. Bond said the drop in oil prices had caused “the mood to darken” in Russia, but noted that “the cheese is still there.”)

VTB Capital was set up in the wake of the financial crisis as Western investment banks retreated from Russia. In early 2009, VTB Capital bought the old London headquarters of Lloyds bank, planted a Russian flag on the roof and hired more than 100 bankers. It later opened offices in Singapore, Hong Kong and New York.

About 40% of VTB Capital’s profits now come from its international business where it offers a full suite of investment banking services, executives say. It hasn’t reported results since the sanctions were imposed.

VTB Capital is hoping to attract more business in southeastern Europe, Asia, India and increasingly Africa, which haven’t imposed sanctions. In July the bank said it was opening a new office in Switzerland for its commodities operations. A big drive is under way to diversify away from simply doing deals involving Russia-based companies. Big recent deals include VTB’s role in Cyprus’s €750 million Eurobond issue and taking India’s Essar Energy private.

“If I look at the last five pages of notes I have made from meetings today and yesterday,” Mr. Cornthwaite says when asked about sanctions, “that word you just mentioned doesn’t feature in them.”

—Alexander Kolyandr in Moscow contributed to this article.

SOURCE: http://online.wsj.com/articles/vtb-capital-sees-no-impact-from-u-s-european-sanctions-1415110245

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