Barclays and HSBC march on Moscow

Author: By Jason Corcoran in Moscow

Barclays, as well as rival HSBC, have become increasingly visible across
central Moscow with new branches and high-profile advertising as part of a
move to aggressively expand in Russia?s major cities.

Hans-Joerg Rudloff, chairman of Barclays Russia and the investment banking arm
Barclays Capital, said the group was making significant capital and trading
commitments to Russia in light of an improving investment climate.

He said: ?The battle against the command economy has been won and there are
signs that ongoing reform will be favourable for the investment community
and that is part of the reason I am putting considerable amounts of money to
work in Russia.? Barclays has 36 branches across the country and is
expanding its operations to offer full-service retail banking from
previously offering support mainly to small and medium enterprises. Stuart
Lawson, head of HSBC Russia said last month that the group would be
?aggressive? in expanding its existing four branches in Moscow and one in St
Petersburg.

A year ago, British firms were afraid they might become outcasts in Moscow
following a dispute at Anglo-Russian joint energy venture TNK-BP, the
closure of the British Council?s offices in Russia and the Kremlin?s refusal
to extradite Andrei Lugovoi, the chief suspect in the London killing of
dissident Alexander Litvinenko. Diplomatic relations between the two
Governments sank to their lowest point since the Cold War but the economic
crisis and the need for foreign investment stimulus has since helped to
paper over political differences.

Mr Rudloff said BarCap, which lost £250m after Russia?s sovereign default in
1998, would also help build a domestic capital market. He added: ?Right
now, we are entering a phase where everything seems to go on green light. It
is evident that Russia is now making huge strides to move forward, be
responsive and get things going. It?s a big offensive directed at foreign
investment and will undoubtedly lure investors into the market.?

Barclays, which acquired local player Expobank last year for $745m, has
recently hired two senior financiers on the ground to build their
businesses.

Nikolai Tsekhomsky joined from state bank VTB last month to head up Barclays
retail and commercial banking business. American Bob Foresman,the former
deputy chairman of Russia?s Renaissance Capital, will start work as Barclays
country manager on December 1. He will be responsible for building
investment banking on the ground as well as the launch of a new local asset
management business to cater to Russia?s wealthy.

HSBC, which already has corporate and investment banking interests in the
country, is spending $200m rolling out a retail and private banking network.
Royal Bank of Scotland?s blue and white livery has also surfaced in Russia
thanks to its acquisition of Dutch Bank ABN AMRO?s operations. Mr Lawson
believes the UK banks offer a better service than domestic rivals. He said:
?In addition to providing conduits for Russian corporates to access
international debt markets, foreign banks are helpful to the Russian market
as they import innovative products and also provide sources of training for
Russian bankers.?

Foreign banks burnt by Russia?s sovereign default in 1998 turned off the taps
to international credit in the aftermath of the current economic crisis. The
banks are reluctant to open new lines of credit until oligarchs agree to
painful debt restructuring of $437bn (£265m) in foreign debt.

BarCap has billions of debt in the Russian public sector although virtually no
exposure to the troubled private sector. Railway monopoly RZD repaid $1.5bn
late last year.

A lack of regulation of Russia?s local bond market have resulted in over 100
defaults since the crisis hit. Bondholders, who have very limited statutory
rights, have in some cases accused issuers of ducking their responsibilities
and stripping assets.

Eric Kraus, a strategist with investment bank Otkritie: said: ?By allowing the
bond holders to be robbed outright, the financial regulators have ensured
that no second or third-tier company will be able to raise finance again.?

Rudloff would like to see tougher regulation and the establishment of
arbitrage courts to resolve disputes. He said: “There should be a review of
the bankruptcy procedures. That would be one of the most important measures
to establish clear procedures if a default occurs.”

Rudloff, who sits on the board of oil giant Rosneft, stepped down from the
Russian media company RBC due to a conflict of interest over $18 million
(£11m) in debt owed to him and his friends.

RBC, which may yet be acquired by Russia?s richest oligarch Mikhail Prokhorov,
has offered creditors to restructure half its debt and asked them to accept
a 64% discount on the remainder.

Rudloff?s own family office has operated in Russia since 1995. As chief
executive of Credit Suisse First Boston in the early 1990s, he sent bankers
Stephen Jennings and Boris Jordan to Russia to scout for deals. The pair
became involved in the state’s pilot voucher auctions and soon left to set
up investment bank Renaissance Capital.

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