Guy Norton in Moscow -
Dontcha just love it when a plan comes together? Ed Kaufman, head of investment banking at Russia's biggest private sector lender, Alfa Bank, certainly does.
Almost three years after he left the relative security of a career at UBS to join Alfa on what was widely speculated, but never confirmed, as one of the most generous remuneration packages ever offered in the Muscovite banking market, Kaufman can confidently point to a set of results in 2009 that illustrates he is well on the way to achieving his mission of helping to produce a well-balanced universal banking platform at Alfa featuring profitable retail, corporate and investment banking franchises. And all this against of a classically Russian boom-bust backdrop whereby the country went from market darling in 2007 to market villain in 2008/9. Just to take one example over the last couple of years the benchmark RTS equities index has gone from 2,500 in July 2008 to a low of 800 in February 2009, before clawing back a fair share of those losses to trade at around 1,360 at the end of May
As Kaufman points out: "My job when I joined Alfa was to fully integrate the investment banking business into the universal banking platform here. In 2009, we had our best ever year, doubling our revenues versus 2008 and were 50% up on 2007."
Of course there's been some pain along the way, with staffing levels cut from 220 to 170 as the effects of the global financial crisis and associated economic slowdown began to bite with a vengeance, with risks escalating and potential revenue streams drying up. Kaufman says that the fact that Alfa was arguably one of the few Russian banks to fully recognize the deleterious effects of the reversal in Russia's economic fortunes in 2008-09 and to have acted decisively has stood it in good stead. "Alfa Bank was the most aggressive in Russia at working out the problems in its non-performing loan portfolio."
Having taken the pain, the bank reaped the gain, with it's no-nonsense approach to risk management enhancing Alfa's already strong financial credibility. In the wake of Russia's August 1998 debt default, Alfa was notable for being the only Russian bank to repay its foreign obligations in full and on time, a fact that eased access to international markets. This was reflected in Alfa's issuance of a $600m, five-year bond in March to a strong investor reception, with the deal upped from an initial target of $500m on the back of an orderbook of over $3bn. Raising fresh funds will enable Alfa to grow its loan book to take advantage of the improved economic environment in Russia. As well as providing welcome fresh capital for Alfa's retail and corporate lending operations, the Eurobond also generated some welcome revenues for the investment banking franchise, with the bank placing a $150m of the bonds itself.
But while Kaufman is happy to snare capital market mandates on a regular basis, he has no illusions about Alfa's ultimate investment banking ambitions. "We don't have pretensions to be more than we can be. We're not aiming to be the biggest investment bank in Russia, but the most profitable investment which keeps costs and risks low."
As part of that philosophy, Kaufman is unapologetic about Alfa's ruthless pursuit of repayment on debts owed by the likes of Russian oligarch Oleg Deripaska. "When we borrow money, we pay it back and we expect the same from our borrowers." He adds that over 3m people deposit their hard earned cash with Alfa and so the bank's first duty is to defend their financial interests and not cater to the whims of impecunious oligarchs.
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