Russian state lender VTB axes 40 London bankers as losses mount

Russian state lender VTB axes 40 London bankers as losses mount
VTB's London unit reported post-tax losses of $9.6mn in 2016. / Photo by VTB
By Jason Corcoran in London June 28, 2017

VTB has axed 40 jobs from its struggling investment banking unit in London as losses mount amid speculation the Russian state lender could exit the UK altogether, bne IntelliNews can reveal.

The bank, which has been sanctioned by the EU and US over the Russia’s annxatuon of Crimea and its military support for the separatists in the Ukrainian conflict, said its UK operation is continuing to stack up losses.

VTB Capital Inc, the London subsidiary of parent VTB Group, said the number of its employees had dropped by 12% to 290 from 330, according to a 132-page filing posted on June 26 with UK Companies House. The filing said 39 bankers had been axed in London and another role had gone in Singapore in its latest wave of cuts.

The disclosure shows the biggest casualties in the latest cull include Andrew Cornthwaite, VTB Capital’s head of international global banking, chief operating officer Steve Rice, and director Geoffrey Russell. 

“Despite the continued challenges to activity in the Russian investment banking market, VTB Capital has kept its focus on the development of client operations across all business lines,” VTB chairman Herbert Moos said in the filing. “We continue to explore new opportunities while remaining competitive in both Russia and international markets.”

VTB has become a pariah in Western capital markets over the past two years and slashed hundreds of staff from its office in London and on Wall Street. Its London office had over 600 employees before the parent group was hit by the onerous sanctions in 2014.

A report in the Financial Times in October last year suggested Brexit complications could force the investment bank to move its European headquarters out of the UK. Moos told the paper that the bank was considering Frankfurt, Paris and Vienna, while a source close to the bank told bne IntelliNews that Frankfurt is currently favoured.

This week’s filing said management continues to monitor the impact of the UK’s exit from the EU on its investment banking activity, although at this stage “it is too early to conclude what this will be”.

Meanwhile, losses continue to mount in London, which also manages other international operations in New York, Hong Kong, Sofia as well as branches in Singapore and Dubai.

The unit reported post-tax losses of $9.6mn in 2016 compared with a similar loss of $9.5mn for the prior year. However, losses are still much lower than 2015 when the bank reported a $92.5mn loss.

Net operating income slumped by 20% during the year, which VTB attributed to “the ongoing impact of the geopolitical situation on market appetite towards Russian and CIS business”.

VTB, which is run by former Soviet diplomat Andrei Kostin, has been aggressively cutting costs and trying to diversify into new geographies to offset the blows in Europe and back home in Russia. Beyond the hit of the EU and US sanctions, the London unit has suffered from severe contagion as well as a collapse in commodity prices.

VTB Capital said its cost management programme, which has been in place since 2014, was continuing and had led to operating expenses falling by 12% during the year. Operating costs per employee were unchanged at $694,000.

Remuneration for directors and senior personnel declined to $12.4mn during the year from $14.8mn. However, its highest paid director saw his package soar to $4.4mn from $2.8mn in 2015.

VTB said it has a commercial lease for five floors at 14 Cornhill, located next to the iconic Bank of England building, with a lease term of 20 years until 2028. The bank, which has an option to first break the lease in 2024, said it has already sub-leased three floors in the London building.

The lender’s maximum credit exposure to any client was $394mn to Lloyd’s of London, which had helped VTB Capital to “de-risk some of its larger African sovereign exposures” via credit insurance contracts.

Two years ago, Kostin accused UK regulators of making excessive demands of the UK operation due to Russia’s conflict with Ukraine. bne IntelliNews reported exclusively last year that Russian lender Gazprombank was also winding up its London operation after the UK regulator indicated it wouldn’t grant authorisation without more information about its shareholder. The secretive lender, which is also now sanctioned, opened its office in London in 2006 with plans to pave the way for the group’s initial public offering.

VTB Capital was the leading investment bank in Russia in the first four months of 2017, earning $16mn or about a 23% share of the market. The business, which has been Russian President Vladimir Putin’s investment banking champion since its inception in 2008, is facing increased competition from state-controlled rivals Sberbank CIB and Gazprombank. Sberbank is third with a 10% share while Gazprombank has a 7% share, according to data provided by New York-based consultancy Freeman & Co.

In the filings, VTB highlighted “its privatisations deals for Bashneft and Rosneft” as well as work on advising lender Otkritie’s $1.4bn acquisition of one of the world’s biggest diamond deposits from oil producer Lukoil. Its bankers have also acted as bookruners on the Kremlin’s $3bn sovereign bond deal in June and in 2016.

Outside of Russia, VTB noted its mandate advising Indian conglomerate Essar on their $13bn sale of Essar Oil to Kremlin-controlled energy behemoth Rosneft and its partners.

News

Dismiss