Russia’s Uralsib brought down to earth as bank puts UK unit up for sale

Russia’s Uralsib brought down to earth as bank puts UK unit up for sale
By Jason Corcoran in Moscow October 25, 2016

Russian bank Uralsib has put its London business up for sale and is retrenching some brokerage operations in Moscow, effectively uprooting the mysticism-laden legacy of its ex-billionaire founder Nikolai Tsvetkov, bne IntelliNews can exclusively report.

The bank, which has ties to President Vladimir Putin, stopped its English-language research daily on October 24 and could discontinue Russian-language products within a fortnight, sources close to the bank told bne IntelliNews. Some analysts and production staff are expected to be laid off with the exception of Dmitry Dudkov, the respected head of fixed income research. Insiders say they expect Uralsib will continue providing research on Russia’s debt markets.

Olga Gorshkova, a spokeswoman for UralSib, declined to answer any questions on the UK business, but she said the bank had decided to suspend publishing materials in English from October 25 to focus on issuing research in Russian. “Uralsib has no intention to cut its Russian language product line or to suspend its production of equity and fixed income research products,” Gorshkova told bne IntelliNews in an emailed statement.  

Uralsib, once Russia’s fifth-largest by assets, has been roiled by mismanagement, the collapse in commodity prices and the fallout from sanctions against the Kremlin’s actions in Ukraine. Uralsib founder Tsvetkov surrendered control in November last year as part of a bailout, after a year of the bank being on the edge of bankruptcy and under threat of having its license revoked.

Writing on the London Wall

“The writing has been on the wall for the UK business since the bank changed hands,” a source close to Uralsib told bne IntelliNews. “The bank has a bunch of guys doing virtually nothing for the past two years but sit around in prime London office space.”

Uralsib employed 25 people in its London office and was the Russian partner to prestigious New York brokerage Auerbach Grayson. The lease of its offices on the 33rd floor of the prestigious Tower 42 (formerly the NatWest Tower) is understood to cost around £4mn a year to maintain and is considered by the new owners to be an extravagance, insiders said.

Tsvetkov, who is a fan of mysticism and a former Soviet Air Force officer, paid the sky-high rent because “the building looks like a rocket ship to the stars”, a former staffer told bne IntelliNews in November last year. The office, which takes up the south-facing side of the building with a panoramic view over the River Thames towards Big Ben, was even decorated with space motifs. “It is the ideal feng shui location,” said the former exec.

Uralsib isn’t the only Russian bank leaving London. bne IntelliNews reported exclusively in February this year that Russian lender Gazprombank was 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.

Alfa Bank, the lender controlled by billionaire Mikhail Fridman, has shrunk its London brokerage operation to a skeleton staff after shutting its New York business and selling its license to BCS Financial. 

Meanwhile, VTB Bank, which retains offices in London, New York, Hong Kong, Singapore, Dubai and Sofia, has also shrunk its real estate in the UK capital. The bank last year slashed its UK personnel to 330 from 425 and its operating expenses by 15%. A Financial Times report on October 11 quoted the bank’s deputy head and CFO Herbert Moos as saying that VTB is leaving London due to anticipated disruption from the Brexit vote in June – a claim treated with scepticism by some observers.

Sanitary measures

As part of Uralsib’s rescue – or “sanitation” as it’s known in Russian – the state extended an RUB81bn ($1.3bn) lifeline to the bank and allowed entrepreneur Vladimir Kogan, a close ally of President Putin, to take a 82% stake.

Meanwhile, Tsvetkov was left with a minority holding and is believed to have withdrawn from the business to focus on his spirituality and personal research. In a profile last year, bne IntelliNews revealed how revelations and mysticism have been the stock-in-trade of his  management style.

By 2006, Uralsib was the fifth biggest lender in Russia by assets and among the bracket of the five most profitable. But the bank never really recovered from the 2008 financial crisis, and Tsvetkov was forced to sell off his supermarket chain Kopeika in 2010 to help plug a financial hole and keep the bank solvent. 

Tsvetkov had been desperate to sell the supermarket business to US giant Walmart, but was frustrated when the Kremlin intervened and told him to sell it to X5, the retail chain of Mikhail Fridman’s Alfa Group. “He nearly had a meltdown because he had to accept Alfa’s oil money rather than the Walmart deal,” says one executive from that time. “He disappeared to the retreat in New Mexico for 10 days to get his head around it.”

At the same time, former executives claim Tsvetkov knew many of the bank’s managers were “diverting profitable trade” to other lenders for kickbacks and did nothing about it. Tsvetkov has been very involved in charity and Forbes magazine reported he spent as much as $300mn of company funds on the restoration of churches, the construction of houses for families with adopted children and other projects.

Forbes estimates the capitalisation of the bank tumbled from a peak of $7.9bn in 2007 to a paltry $170mn today. Late last year, Fitch Ratings lowered Uralsib’s long-term foreign-currency issuer default rating to ‘B-’ because of the weakening of the bank’s capitalisation, asset quality and profitability. Problem loans surged to 15% of the loan book and the bank faced the risk of breaching the 6% Tier 1 capital ratio, according to Fitch.

In September this year, Uralsib’s board approved a plan by Kogan to merge the lender with Bank BFA and Bashprombank. Yelim Kogan, Vladimir Kogan’s son, is reported to be a major shareholder of BFA Bank. 

Uralsib has also been busy disposing of assets and sold a 6% stake last month in Russian real estate developer PIK.