Barclays, Deutsche Bank and Royal Bank of Scotland could be frozen out of Russia's prestigious $3bn Eurobond deal after the three European lenders shut their investment banks in Moscow.
The three banks are on a long list of 28 institutions vying to help the Kremlin organise the deal but some analysts think they may be there just to bring up the numbers. In 2013, Deutsche Bank, RBS and Barclays all helped to organise a whopping $7bn Eurobond deal, along with Russia's VTB Capital, Gazprombank and Renaissance Capital.
"When they do their beauty contest, it must be one of the things they discuss," Tom Adshead, chief operating officer at Macro Consultancy in Moscow, tells bne IntelliNews in an interview. "There's a whole process of schmoozing the government and no doubt anyone seen to be closing an office in Moscow or retreating may be penalised. You are always going to prefer a bank who has a proper local presence."
Barclays became the latest international lender to cut and run in Moscow when they shut their investment bank in January. The move came just six weeks after British rival Royal Bank of Scotland announced it was selling its Russian business. A trading scandal led to the closure of Deutsche Bank's investment banking operation in September with the loss of at least 200 jobs, although the German institution retains a presence in Moscow and St Petersburg.
"The Kremlin has a long memory when it comes to paying bankers fees for bond deals and privatizations," a veteran European banker in Moscow tells bne IntelliNews. "If you don't have capable people on the ground permanently, the bank's top brass find it more difficult to get in the door and have an audience with MinFin."
Wall Street bulge-bracket banks Goldman Sachs and JP Morgan will be optimistic of muscling in on the deal. JP Morgan, whose head Jamie Dimon has met with President Vladimir Putin, keeps a large office in Moscow and has a retainer since 2013 advising the Kremlin on how to boost its sovereign credit ratings.
Goldman Sachs, which recently reshuffled its senior management in Moscow, was hired by the Russian Economy Ministry in 2013 on a three-year deal to burnish the nation's image overseas and attract more institutional investors.
But Goldman, which is run by Lloyd Blankfein, has had a torrid time in Russia and has lost out on the last four sovereign deals.
Banking insiders say the Finance Ministry, when it was headed by Alexei Kudrin, fell out with Goldman Sachs while the Kremlin was unimpressed that the New York-based bank kept coming and going like a yo-yo.
Goldman cut back its operations in Moscow soon after opening an office in 1994. It returned again in 1998, managing Russia's sale of bonds a month before the country defaulted on $40bn of domestic debt. That prompted it to withdraw almost entirely before it ramped up again in 2006.
Russian banks VTB Capital and Sberbank are likely to be on the deal and the Finance Ministry will probably award a spot or two to the Asian banks as the Kremlin seeks to diversify its funding by pivoting eastwards.
If Russia succeeds with the bond sale, it will be the first time it has tapped international capital markets since sanctions were imposed in 2014 for Moscow's annexation of Crimea and backing of separatists in East Ukraine.
Russia's borrowing costs have dropped this year in anticipation that EU and US sanctions may be eased by July or by the end of year. Its 2023 dollar bond has rallied, pushing its yield down to 4.5% from 4.9% two years ago.
"The government may elect to wait till the summer if they think oil will rebound or if sanctions could be eased in some way," says the veteran European banker.
Analysts believe the US and European banks will be able to traverse the sanctions minefield and work with the sovereign without incurring the wrath and fines from regulators.
Eurobond deals for Russian blue-chips Norilsk, Gazprom, Evraz and Alfa Bank were heavily over-subscribed late last year, indicating a pent-up demand for Russian paper.
"Russia is not a distressed borrower and they won't have to pay a crazy yield," said Adshead. "It's a straight-forward deal but it would be much cheaper for the sovereign if they sold when sanctions are lifted and if oil prices are higher."