US investment bank Jefferies Group has shuttered its Moscow business as the exodus of foreign banks and capital accelerates from Russia, bne IntelliNews can exclusively report.
Details of Jefferies' exit come amid confirmation of another loss to the foreign banking scene, as Steve Hellman, chief executive of Credit Suisse in Russia and CIS, quit after six years in the role. US lender Citigroup has also reshuffled its deck in Moscow after three key bankers quit in the past few weeks.
Jefferies, which has an office close to Red Square, is the first major US bank to quit Moscow since the current crisis over Russia's involvement in the Ukraine conflict erupted almost two years ago. The US lender is retreating from the capital just months after the departure of European rivals Barclays and Royal Bank of Scotland. Deutsche Bank also closed its Russian investment bank in September following a trading scandal.
A source at the US bank told bne IntelliNews that Jefferies had quit Moscow a couple of months ago due to lack of deals and the "pessimistic outlook" for the Russian economy and relations with the West.
Richard Khaleel, a spokesman for Jefferies, declined to comment in an e-mail. Telephone calls to its Moscow office were patched to London while the Moscow office contact details have been scrubbed from the corporate website.
The New York-based bank, which only opened its Moscow office two and a half years ago, was trying to focus on mergers and acquisitions, high-yield financing and global equity distribution.
But the timing of its opening was dreadful as Russia's capital markets seized up nine months later after the Kremlin's annexation of Crimea in March 2014 led to conflict in East Ukraine and Western sanctions against Russia. Fees from Russian mergers, initial public offerings and bond sales plunged last year 41% to $208mn from $355mn, according to US consultancy Freeman & Co.
In an October "Jefferies Insight" memo to clients, the bank said Russia is "ensconced in the massive pain that comes from being economically dependent on a narrow export commodities base - oil and gas".
Jefferies added that "the capitalism concept really never took hold in Russia because the only way sustainable open markets work is through transparency, a culture of integrity and a legitimate legal system".
The bank was led in Russia by Ildar Iksanov, who had previously run metals and mining at Deutsche Bank in Moscow. Jefferies had worked as a corporate broker to Russian miner Nord Gold after it was spun out of steelmaker Severstal. The firm also advised Nord Gold on its takeover of High River Gold in Canada and helped organise its inaugural $500mn bond.
Pior to sanctions, banking insiders told bne IntelliNews that Jefferies had been involved in discussion with Russian brokerages, including BCS Financial Group, about a potential alliance to provide clients with sales, trading and research from Moscow.
The Wall Street bank, which is owned by Leucadia National Corp., has been reining in its foreign ambitions since taking over UK broker Hoare Govett from Royal Bank of Scotland in 2012 and expanding aggressively into Europe and Asia.
The bank plans to cut 40 roles in sales, trading and research overseas in Hong Kong and China, according to a December report by Bloomberg News.
Meanwhile, Credit Suisse's Hellman will be replaced by Russian Dmitri Kushaev, who currently heads private banking, according to an e-mailed statement from Credit Suisse.
Kushaev joined the bank from Blackstone Group in December 2014 just months after the US private equity giant pulled out of Russia. He previously worked in senior roles at ING and Donaldson, Lufkin & Jenrette.
The Swiss bank, which moved part of its Moscow operation to London in 2012, saw its fees plummet by 92% to just $2mn last year from $24mn in 2014, according to data from New-York based Freeman & Co consultancy.
The departure of Hellman, a fluent-Russian speaker, comes amid an exodus of senior foreign banking veterans from top posts. Goldman Sachs co-heads, American Nick Jordan and Italian Paolo Zannoni, left the US bank late last year as did the British boss of HSBC Mark Stadler. Joerg Bongartz, the long-time chairman of Deutsche Bank in Russia, returned to Frankfurt not long before the closure of its investment bank in Moscow in September.
US and European firms have been steadily cutting staff and relocating key talent to London as the deal flow trickled. The drop in activity to the lowest in 14 years may now force some firms to re-examine their bet on the nation. Investment banking fees in Russia plunged last year 41% to $208mn from $355mn, according to Freeman & Co.Making for the exit
Barclays became the latest international lender to completely cut and run in Moscow when they shut their investment bank in January. The move came just six weeks after British rival Royal Bank of Scotland announced it was selling its Russian business. A trading scandal led to the closure of Deutsche Bank's investment banking operation in September with the loss of at least 200 jobs, although the German institution retains a presence in Moscow and St Petersburg.
After Russia's Crimea snatch, the EU and US imposed financial restrictions, visa bans and asset freezes on scores of Russian companies, politicians and individuals. A collapse in the price of crude oil, the nation's biggest export revenue earner, has exacerbated the impact on the economic slump, further slowing deal-making. In 2014, capital flight accelerated to a record $153bn amid sanctions and sinking commodity prices.
Some EU member states have waned in their enthusiasm to continue the sanctions, but Germany's insistence that Russia adhere fully to the Minsk 2 peace accords to end the conflict in East Ukraine means the prohibitions will continue for another six months at least. The US State Department is unlikely to lift its sanctions any time soon as the US has far less trade with Russia and is in an election cycle where cosying up to President Vladimir Putin isn't expedient.
A senior Russia-focused banker expects Bank of America Merrill Lynch to be the next major investment bank to follow Jefferies.
"Jefferies won't be the last foreign player to exit this year," the senior banker told bne Intellinews. "Unless you have a long-time horizon, I can't see Bank of America sticking it out and Credit Suisse could fold too."
Bank of America, which has hummed and hawed about obtaining a full banking license for years, has cut back personnel and is left with a modest sales, trading and research and investment banking team headed by Sasha Pertsovsky.
Citigroup has also rearranged its Moscow line-up after the recent departure of investment banking head Dmitry Ankundinov, head of securities and fund services Alexei Fedotov and head of communications Denis Denisov, sources close to Citigroup told bne IntelliNews.
Irackly Mtibelishvily, head of the corporate and investment bank for Russia, was also promoted in December to lead Central & Eastern Europe, Middle East and Africa business.
Ankundinov left to join Sberbank while Fedotov has left for an unspecified role. Denisov, a director and a veteran of Citigroup for 13 years, joins emerging markets PR agency EM as a director in Moscow. It is believed Mtibelishvily will assume Ankundinov's duties.
Larisa Gorbacheva, head of direct custody and clearing, may replace Fedotov, who had run the $20bn assets under management business for over 11 months, a source at the bank told bne IntelliNews.
Citigroup, which returned to Russia in 1992 after a 72-year hiatus, is one of a few foreign banks that prospered in consumer banking after the collapse of the Soviet Union. It ranks among the top five foreign retail banks, claiming to have more than 1mn clients and 4,000 employees in 12 cities.
But it is also now believed to be scaling back its exposure to Russia amid the plunge in commodities and the hit to the economy from the international sanctions.