Ben Aris in Moscow -

Uniastrum was one of the fastest growing banks in Russia during the boom years, pioneering a pan-CIS money transfer business worth billions of dollars. But as the crisis began to take hold in 2007, the bank's founder, George Piskov, read the writing on the wall and went shopping for a strategic investor.

One of the 30 biggest banks in Russia, Uniastrum closed a deal to sell an 80% stake to the Bank of Cyprus on October 31, 2008, impressively closing the $576m deal in the eye of the firestorm that was raging around the world. "We understood that without new capital there would be no way to fund our operations, as we had depleted our own personal reserves by the end of 2006 and we could see the crisis looming," says Piskov in immaculate English that even has a touch of the Ascot accent about it, where he has his London home.

The Bank of Cyprus deal did more than save Uniastrum's bacon - it has left the bank in a strong position to capitalise on the current crisis and further improve its position in the market.

Piskov and his partner Gagik Zakaryan retain a 20% share, but more importantly for Bank of Cyprus, they have both agreed to stay on as managers for another three years. The original plan was for the Bank of Cyprus to then buy out their remaining stake, but as the crisis unfolded the two men agreed to extend their stay until 2016 or 2017. "We were looking for partners, not investors, and began negotiations [with the Bank of Cyprus] when the early signs of the crisis became apparent in the middle of 2007," says Piskov. "We were not an easy bank to buy, as what we do is not plain vanilla banking services. It was a privately held and very dynamic bank, so it was much harder to explain what we did."

The deal was closed at valuation of 3.8x book value - a very decent price given the storm clouds on the horizon were already black. "And at the time, the reporters said that we sold the bank too cheaply. But we were laughing to ourselves six months later," says Piskov.

Crisis management

Piskov says that while this crisis has been bad, it could have been a lot worse. But Russia's regulators seem to have learnt the lessons of the past well and fast action staved off the worst-case scenarios. "If you compare the crisis in 1998 with the one in 2008, the behaviour of the authorities was very different," says Piskov. "In 1998, the only decisive action the government took was to default on its debt. However, in 2008 the [Central Bank of Russia] took a wide range of very decisive actions in the midst of the crisis and the government was very supportive."

Piskov points out that despite the hullabaloo surrounding the crisis, the situation on the ground for bankers isn't that bad: liquidity is back in the system; no major banks have collapsed; no major corporations have defaulted on their debt; and business has continued as normal - albeit at lower levels. Now that Russia is moving into recovery mode, the pressure on banks is easing quickly. "Interest rates went up in the crisis and loans are extended at these higher rates, although non-performing loans also increased. However, as interest rates start to fall - and they are already falling fast - the cost of capital is going down faster than the interest rates, which is good news for banks," says Piskov.

The combination of the crisis and a new majority owner has driven the bank to remake its loan book. "In a short time, the bank has already had to say goodbye to a number of good clients, simply because the new standards demanded it. Our loans would have grown by more than a third in the first nine months of this year if we had kept them on," says Piskov.

New terrain, new direction

The environment for banks has been changed by the crisis and Uniastrum is rolling with the blows. The bank was already busy building up its deposit base that provides the bulk of its funding needs, but in the post-crisis environment a domestic funding base has become an imperative. "We have a comfortable deposit base that provides most of our funding needs," says Piskov. "When there is a funding gap, we have a credi tline from the Bank of Cyprus, but we haven't used it. We are a Russian bank and if we need additional capital, then we will raise it on the Russian capital markets." Indeed, Bank of Cyprus said in July it plans to list Uniastrum on a Russian bourse within the next seven years.

Piskov says that the crisis has changed the rules of the game, but it has also brought businessmen and investors back down to earth after an orgy of speculative investments and inflated asset bubbles. "But now we have to look to the future. Banks will start to resume lending to corporate clients and they can go back to business as normal. At the same time, employees are still getting paid and the shortage in housing [in Russia] is still there, so demand will recover," he says.

The bank intends to keep its mix of corporate and retail business at about 50-50, but amongst the new priorities is to concentrate more on working with small- and medium-sized enterprises. "SMEs are a very important sector of the economy and they will account for most of the growth over the next five years. The crisis has been good for SMEs, as especially in the regions the authorities have realised that they can't get stable growth without promoting SMEs. If they don't support them today, then tomorrow the same people will be knocking on their door as the unemployed."