Ruben Vardanian is a huge bear of a man. He is hard to interview as when he speaks it is like listening to thunder. But despite his imposing physical presence he radiates a modesty that belies his status as a titan of Russian banking. And the wellspring of this modesty is the philanthropic streak that has run through everything he has done in business.
The leitmotif of Vardanian’s career has been wealth creation. We met on the sidelines of the Dialogue of Civilisations annual meeting on the island of Rhodes where academics and leading politicians meet to discuss the world’s ills.
Vardanian is a member of the economic advisory board at the International Finance Corporation and on the boards of a number of companies, as well as the boards of an equal number of philanthropic organisations. He came to Rhodes to speak on panels about migration, which has affected the Commonwealth of Independent States (CIS) as much as Europe.
As an ethnic Armenian — he owns Ameriabank, the largest commercial bank in the country — it's a topic he knows well. Russia has not received many refugees from the Middle East wars, but there is a steady stream of citizens of the former Soviet Union that migrate to Russia in search of better pay that they send home to support their families. More recently more than a million Ukrainians have fled fighting in the Donbas for Russia.
Vardanian’s efforts to promote wealth creation have made him rich, but he is interested in promoting wealth creation for all the countries he is involved with, as he believes lifting the boat for everyone is the best way to support and promote his own business. You can only be a capitalist if you have a capitalist system to live in.
“There are a lot of problems in the world today and the only way to resolve them is through dialogue,” Vardanian told bne IntelliNews in an exclusive interview. “But once those problems are resolved the goal has be promoting wealth creation. Prosperity brings peace and to achieve this goal we have to work on all aspects of that problem, with education being one of the most important.”
Vardanian’s career started with the founding of Russia’s first western style investment bank Troika Dialog when still in his 20s, together with two Americans Peter Derby and Bernie Sucher. Troika flourished in the 90s, and soon after the bank became successful he launched a project together with other successful entrepreneurs to work out a reform plan to transform Russia.
Vardanian sold Troika to Sberbank in January 2012 for a reported $1bn, after which it became Sberbank CIB, the investment banking arm of the state-owned retail banking giant.
The sale of Troika marked a big shift in Russia’s banking scene, a downsizing of commercial investment banks as this role was taken over by the two state-owned giants; today Sberbank CIB and its sister bank VTB Capital dominate Russia’s investment banking business. Only two small brokers, Aton and BCS, are left in the game.
The Russian banking sector is now going through more change as the Central Bank of Russia (CBR) has started aggressively closing banks and enforcing regulations more strictly since the start of this year. The collapse of Financial Corporate Otkritie and Binbank (aka B&N Bank) in September nearly caused a crisis and the banks have already cost the state some RUB1.1 trillion ($18.8bn) to bail out. The takeover of these two banks by the state using the new Banking Sector Consolidation Fund (BSCF) has increased the state’s share in the sector to close to 70%.
“There is no banking crisis in Russia, but it is going through a difficult time. Banking goes in cycles and this is another one of the downturns. The state has increased its share [in the banking sector], but the same thing happened in the US after they went through their big crisis in the 70s. The key element to look at is if there is change in the attitude to allowing private enterprise to create wealth. And that has not changed,” says Vardanian.
He points out that things have changed dramatically in the banking sector over his long career and the CBR’s campaign to clean up the sector, as well as the current pressure on the leading commercial banks, have to be seen in that context.
“In the early days it was easy to make money: banks just needed to speculate against inflation. Now the economy is entirely different. Growth is slow. Clients are not making money. Consumers are not borrowing. The equity market is flat. It’s very hard for banks to make money now,” says Vardanian.
Of the 4,500 banks set up at the peak of the “wildcat banking” early phase of Russian banking, there are only some 600 left and Russia is on course to have just 300 in about four years time. Fitch recently released a report arguing that Russia only needs 50 banks. The CBR has made it clear it will allow six times this number, but the majority will be given a new “basic” banking license, a cut down service that severely restricts international foreign exchange operations, amongst other things, and is clearly targeted at reducing money laundering and illegal tax avoidance scams that hide clients’ money overseas.
Vardanian argues that the share of commercial banks in the private sector will rise again as the economy recovers, and the state has also put shares in VTB on the privatisation list, although the Kremlin is not in a hurry to sell stakes in any of its companies in this depressed market.
Vardanian has been interested in promoting a transformation to a more prosperous market from the start. In addition to banking he was one of the prime movers behind the Skolkovo business school project among other things.
Early in Vardanian’s career he set up the “2015 club” and together with other early entrepreneurs they invested money into research in an attempt to draw up the best possible reform strategy for Russia. The club was called 2015 as that was the year Vardanian’s eldest son would leave university and the goal was to have a Russia where not only could he find a satisfying job but that would be a country where he would want to work and live.
“He just came back from studying abroad and is working here!” says Vardanian. “So in that resect the plan worked.”
Large parts of the plan Vardanian came up with were adopted by German Gref, who was the minister in charge of implementing the first round of reforms in President Vladimir Putin’s first term.
Russia has now come full circle in that the first phase of transition is finished and a functioning economy has been created from the chaos and rubble left after the collapse of the Soviet Union. However, Russia’s economy fell into recession back in 2013 when oil was still over $100 and well before the current showdown with the west started, as it ran into the brick wall of the lack of deep structural reforms.
The need for another round of reforms is pressing and various teams are working on the plan in three main camps led respectively by former finance minister and co-head of the presidential council Alexei Kudrin, Minister of Economy Maxim Oreshkin and ombudsman for business and presidential commissioner for entrepreneurs’ rights Boris Titov
Vardanian is not as involved in this process as in the first pass, but is still active as he believes education holds the key to change. And the Skolkovo business school is his main contribution.
“It’s all about wealth management and wealth creation,” he says. “Skolkovo is going well. We have produced a cadre of students that are now moving out into the economy. What we teach is entrepreneurism. People that understand how to do business and manage the process.”
While many of the alumni came from Russia’s largest companies, about half are setting up their own companies after they leave in contrast to western business school alumni, many of which go into banking and consultancy, according to Vardanian.
The reach of the school has also extended and is now attracting students from across the Commonwealth of Independent States (CIS), including Ukraine and Central Asia. And the school has become profitable, which was an important part of its mandate.
“There is a dearth of managers in Russia and the CIS countries. Training and education is a key part of this wealth creation process. What we need now is to find a way to push people out of their comfort zone. That is where you get innovation. That is what the teachers need to teach. In the Soviet system that was not part of the system,” says Vardanian. “We need global people with a local identity.”