Sberbank plots course out of London and New York investment banking

Sberbank plots course out of London and New York investment banking
Sberbank is said to be about to quit its overseas investment banking hubs.
By Jason Corcoran in Moscow March 31, 2016

Russia's biggest lender Sberbank is planning to withdraw from its investment banking operations in London and New York, two years after its business model was decimated by sanctions over the Ukraine conflict, sources close to the bank tell bne IntelliNews. "The London and New York offices may either soon be shut or slimmed down to a name plate," one source says.

Paolo Zaniboni, head of the London unit of Sberbank CIB, left in March, according to filings made with the UK's Financial Services Register. The London business had already been cut to the bone following a quadrupling of losses in 2014 and a record $5mn sexual discrimination award against the division. A London-based spokesman admitted Zaniboni had left the company, but inistyed "the London office is very much open". 

The writing has effectively been on the wall since mid-March, when the bank's CEO Herman Gref told Bloomberg that investment banking is "not our strategy in the long term" because it's not growing as fast as the bank's retail or corporate units.

Gref, a former economy minister under President Vladimir Putin, has soured on investment banking since paying Armenian banker Ruben Vardanian and his colleagues more than $1bn in 2011 for Troika Dialog. The business was later rebranded Sberbank CIB.

Sanctions toll

bne IntelliNews reported exclusively in February that Gazprombank, Russia's third-largest lender, was winding up its London business after it, like Sberbank, was sanctioned by the US and the EU over Russian military adventurism in Ukraine. Sberbank, meanwhile, cancelled its annual investor forum in Moscow and has been cutting its headcount in both London and Moscow as trading has dried up. "For many clients, the backdrop of the sanctions has led to a soft embargo where it's regarded more prudent to avoid transacting in Russia markets or with Russian-owned counterparties than to risk falling foul of the sanctions framework," Zaniboni said in an August 2015 filing to UK Companies House.

Sanctions against Sberbank and its state rival VTB Group do not prohibit clients from trading with them. But they do restrict investors from accessing debt and equity financing from these lenders with a maturity of longer than 30 days. However, many leading UK, European and US fund managers cut trading lines entirely with Sberbank and VTB for fear of incurring the wrath of Wall Street regulators. "We can't lend them money, but we're technically allowed to trade," a UK fund manager, who oversees several billion dollars, tells bne IntelliNews. "But we told them we had to pull the lines until sanctions were taken off."

Zaniboni said staff costs last year were reduced further in February through a reduction in headcount. "The geopolitical events in Ukraine and the ongoing impact of US and EU sanctions have had a significant impact on our trading volumes, particularly during the second half of the financial year," Zaniboni said. "Turnover across the business was directly affected, reflected in the 46% year-on-year reduction."

Hard harassment hit

The Russian bank's UK business has also been hit by a sexual discrimination scandal involving former employee Svetlana Lokhova. An employment tribunal awarded the former saleswoman £3.2mn after finding she had been a victim of harassment, victimisation and discrimination amounting to constructive dismissal.

Lokhova was taunted as "Crazy Miss Cokehead" among other slurs by her London colleagues and was driven to a mental breakdown, the tribunal ruled. Lokhova later passed a drug test taken at her insistence, while the UK Tribunal ruled that Zaniboni had victimised her by failing to discipline the London-based bankers who bullied her.

Adding to the financial burden of the year, the firm said it had entered into contracts to refurbish its offices on 85 Fleet Street to the value of $2.4mn.

Sberbank CIB's New York operation, run by Chris Osborne, is much smaller than the London business, which had about 40 staff a year ago.