Ben Aris in London -
Chief financial officers normally have a boring job. This is the man that makes sure all the numbers add up and that there is enough money to fund the running of a bank or company. Uralsib hired Konstantin Vaysman as CFO at the start of this year and he hit the ground running.
If September was a nightmare for equity investors, then October was the scary month for bankers as funds flooded out the door and the system was threatened with complete collapse. In the last few months, CFOs have found themselves on the frontline fighting to keep their companies and banks alive. Uralsib is a top-five Russian commercial bank, but had to turn to the state for some help and is now recapitalising in case of more nasty surprises next year.
"By the end of November, the situation was starting to settle down again, but we are not out of the woods yet. We expect to see a crawling fall going forward," says Vaysman on the fringes of the Adam Smith annual Russian banking summit in London.
Russia's stock market plummeted in September, but the fear only spread to the general population in October, who then started withdrawing money from their accounts: in September deposits fell by 1.5% of the total, but in October this rose to 6%, putting banks under huge pressure to maintain liquidity. Almost as damaging was the estimated $40bn that Russians changed out of rubles into dollars, putting pressure on banks to come up wth foreign currency at the same time.
By December, fast action by the Central Bank of Russia (CBR) and lots of state money had stopped the haemorrhaging, but there is more pain on the way. Bankers and analysts are universal in their belief that the quality of assets at banks are deteriorating fast and there will be some sort of shock in the New Year once the level of non-performing loans gets above the 5% of the total loan portfolios. The consequences for the bank system could be enormous, but not all bad. "There will be a consolidation of the Russian banking sector," says Vaysman. "The outflows we have seen so far are not a crisis per se, but a crisis of trust, which has hit the whole sector, irrespective of the strength of the bank."
Vaysman graduated from the Moscow State University for Management, one of the very few Russian universities to offer coursing in business administration, and has since spent a career dodging crises in the bank sector.
After some travelling in France, he joined Torribank in 1993, which was a fast growing and progressive regional bank, eventually bought by the European Bank for Reconstruction and Development just before it went bust in spectacular fashion in 1998. But Vaysman had moved on before then, following his deputy chairman to join the Credit Bank of Moscow (CBM) as CFO in 1996. "I was in charge of all the financial planning, risk management, controls and implementing the international accounting standards. It was a small bank so it was a huge responsibility," says Vaysman.
But being small had its advantages and allowed the bank to survive the 1998 default and devaluation. "Part of my job was to closely analyse all the banks we worked with. I closed all limits to the other banks in February 1998 and we only worked with state banks," says Vaysman. "I can't say that I predicted the crisis, but I did see the risks rising. By July, I understood that something dangerous was coming."
When the storm did hit, CBM had withdrawn from the interbank market and cut its exposure to state treasury bills, the notorious GKOs, back to near nothing. "We actually gained from the crisis, as we were able to pick up a lot of clients, especially corporate clients," says Vaysman. "Pre-crisis we were in the top 300, but after it we have moved up to the top 60 biggest banks in Russia."
Negotiating crises is a tough way to learn your trade, but Vaysman says the current crisis is far worse than that of a decade ago. "In 1998, the banks went bust and after a short period of calm returned and the sector was restarted from zero," he says. "Devaluation immediately benefited some companies, like oil producers as their domestic costs were cut to a quarter but their exports were still denominated in dollars, so they were much more competitive. This time round and everything has been frozen. And the situation is the same everywhere - inside Russia and out. There is no business at all."
Shortly after the 1998 crisis, Vaysman moved again, following another former colleague of Torribank who set up RoEvrobank in the wake of the financial collapse, this time as CEO. As a post-crisis bank, it could claim to be clean and picked up a lot of corporate business, as everyone was looking for banking services they could trust. RosEvrobank grew very fast, but was sold two years later and after a short hiatus in Chicago to earn an MBA, Vaysman was hired as chief strategist at Uralsib at the start of 2008, but after only a few months was made CFO as well. "It made sense. My job as head of strategy goes hand in hand with financial control. Finance is about dealing with the past and the present, whereas strategy is about dealing with the finances of the future. If you are not concerned about the strategy as a CFO, then really all you are is an accountant," says Vaysman.
Uralsib is in a strong position now, as it has a wide deposit basis and only short-term liabilities. Moreover, the bank is pre-empting problems further down the road by increasing its capital. The bank has added to its Tier-2 capital with RUB12bn of investments evenly split between the shareholders and the state-owned debt agency Vnesheconobank. The shareholders will inject more Tier-1 capital in the New Year with a share issue that will add another RUB6bn. "By the end of 2008, we will have increased our capital by 25% and by the end of the first quarter of next year by a total of 35-40%," says Vaysman.
But the crisis will have several effects on Russia's bank sector and not all of them bad. The first thing to happen will be a long-overdue consolidation of the Russian bank sector. On December 3, the leading commercial bank MDM Bank announced it was merging with regional wunderkind bank Ursa to create an as-yet-unnamed powerhouse in the Russian banking sector.
The second thing that will happen is that the trend for banks to increasingly specialise will be reversed for the meantime, as instability favours banks like Uralsib. "Post crisis, the trend will be back to universal banks for a while, as it is a more stable model. I have huge respect for what Kit Finance, Home Credit Finance Bank and Russky Standart [all specialist banks hurt by the crisis] have done, but you can't grow so fast indefinitely. Even without this crisis, at some point they were bound to run into problems with their asset quality as they were growing so fast," says Vaysman.
And for the first time in Russia's modern history, the government will play a key role in determining what happens next. For most of the last decade and half, business and banks have grown despite, rather than because of, government policy. But to stave of the worst scenarios, the state needs to step up to the plate and make a lot of changes, so banks like Uralsib can react to the fast pace of change in the market. "There is still a massive amount of work to be done," says Vayman. "The government needs to divide the economy into sectors and at the same redesign the entire structure. We have to boost investment into the economy and promote basic things like food rather than pump money into things like nanotech.
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