Ben Aris in Moscow -
Since the 2008 crisis, several foreign household banking names have been driven out of Russia's market, but not SociÃ©tÃ© GÃ©nÃ©rale - it's on the verge of fully merging its Russian assets with Rosbank to elbow aside the competition and become the largest privately owned bank in the country.
Russia has left several top executives at banks in London red-faced and in some cases without their jobs. British financial powerhouse Barclays Bank bought the small Russian operation Expobank at the top of the market in 2008 for a whopping $745m and started to pour money into building a retail operation. But earlier this year, it gave up on Russia as a bad job and put its Russian assets up for sale. Likewise, HSBC trebled the capitalisation of its Russian subsidiary to $300m just priot to the crisis, but also decided competition was too stiff earlier this year and is also selling (although both banks are keeping their Russian corporate banking divisions). Italy's Intesa bank and most recently Nomura are also winding down their Russian operations.
Pre-crisis, banking assets in Russia were growing by 40-50% a year, creating plenty of growing room for everyone. But as of the middle of this year, the sector was growing at only about 15%. Furthermore, the state-owned banks have become much more aggressive, putting further pressure on the commercial banks. "Sberbank has changed radically since [CEO German] Gref arrived. It has slowly become a lot more competitive and aggressive in sales and developing the relationship management," Ulan Ilishkin, deputy CEO of Rosbank, tells bne.
Sberbank was once famous for its slow and surly service, but not anymore. Despite having over 25,000 branches and more than 200,000 employees, it has recently become more nimble than many of the commercial banks by devolving power to the branch heads to make decisions. Sberbank's market share had fallen steadily over the last 20 years, but now it's starting to grow again.
Consolidation and mergers
SocGen has targeted Russia from the beginning, building and buying assets over the last decade, as the management believed that Russia offered the best growth potential of the emerging markets. "SocGen has operations all over the world, but Russia is already the bank's second largest market after our home market," says Ilishkin. "In France, we have 40,000 employees and in Russia there are 30,000. This is streets ahead of Romania, the third biggest with about 9,000, and most of the other markets - including China, India and Brazil - there are 1,000 people working for the local SocGen branches or less."
Ilishkin says that the other BRIC markets have high barriers to entry and their markets are difficult to develop. However, Russia has been wide open for foreign banks. "The Russian market is still not yet saturated and it continues to grow - it's a young market," says Ilishkin.
The crisis has been extremely painful and the bank is still recovering, having made a loss last year, but Ilishkin is confident that things will pick up soon. "We are still here. It is not easy to enter a market as big as Russia, but once you grab such a big piece of the market then you have a competitive advantage.
The contraction in the Russian banking sector is forcing a consolidation of the sector, though SocGen had already embarked on this process before the crisis struck.
And Ilishkin is the man to do it. Having worked for Rosbank, which used to belong to Russian oligarch Vladimir Potanin, he probably has more experience of merging Russian banks than anyone else in the country. Following the last crisis in 1998, Russia went through a similar consolidation process; Rosbank bought first OVK in 2003, the rump of failed high street bank SBS Agro, the first major Russian banking merger that made Rosbank one of the biggest retail banks in the country. "I was on a plane for two years putting all those banks together, as actually OVK was six legal entities - one for each of its main regions. Technically, the merger was only completed three years ago," says Ilishkin.
Having finished one set of major mergers, Ilishkin had to start on another set almost immediately. SocGen started buying pieces of Rosbank in 2007 at a hefty premium and brought its stake up to 75% last year. Russia's state-owned VTB Bank holds another 11% and Potanin continues to own the rest. In addition, the French bank owns 100% of mortgage specialist DeltaCredit, consumer finance bank Rusfinance Bank, and set up its own greenfield retail operation under the Bank Societe General Vostok (BSGV) brand.
However, over the last two years SocGen has been merging this jumble of assets into a single group and begun to streamline the whole operation into a single banking giant.
RusFinannce is one of the few pieces that will retain a separate identity. Formerly a car loan specialist based in Samara in the Volga basin, it will retain its specialist function, although all the branches will be closed and representatives concentrated at the points of sale - mainly car showrooms. Car financing deals will be cleared and settled in the Rosbank offices. The mortgage specialist DeltaCredit will also keep its brand identity and both Delta and Rusfiannce have already been merged in January this year to become daughter banks of Rosbank.
SocGen has decided to close its own retail operation BSGV completely, which was legally subsumed into Rosbank in July with the technical merger of their IT systems due to be completed in October this year. However, it will take another year for all the BSGV offices to be re-branded Rosbank. BGSV also has insurance, leasing and factoring subsidiaries that will also be included in the roll up.
Small is beautiful, but with another crisis looming in Russia at the moment big is better. At the end of the process, Rosbank will have increased the number of branches to around 1,000, but more valuable will be its unique marketing position. "We decided to keep the Rosbank name rather than the French identity, as we hope to get the best of both worlds: a Russian bank with international backing," says Ilishkin.
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