Russian lending behemoth Sberbank has resurrected its interest in investment banking by boosting its trading capabilities and re-entering the capital markets business after an absence of several years, bne IntelliNews can reveal.
The bank, which has a near-stranglehold on Russian retail and corporate lending, had cooled its interest in investment banking as the business haemorrhaged losses amid sanctions and scandals. Sources close to the bank told bne IntelliNews that Sberbank boss Herman Gref had even considered pulling the plug on its costly London and Wall Street operations.
However, it looks Gref has had a change of heart, judging by the latest filings with UK Companies House late last month. The filings say the business model has “changed significantly during the year” following a move to develop a trading business to generate revenue in both cash and derivatives. The bank also re-entered capital markets after a long absence and claimed to have delivered “meaningful fee revenue” by helping clients access an international investor base for their primary equity and debt sales. Recent deals include a mandate last month on Russian shipper Sovcomflot’s $550mn equity listing and as a bookrunner on Phosagro’s recent $500mn five-year eurobond issue.
Gref, a former economy minister under President Vladimir Putin, told Bloomberg News in 2017 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 has soured on investment banking since paying Armenian banker Ruben Vardanian and his colleagues more than $1bn in 2011 for the Moscow broker Troika Dialog. The business was later rebranded Sberbank CIB.
Sberbank UK investment bank has had a torrid time over the past few years. The business was pared back following a quadrupling of losses in 2014 and a record $5mn sexual discrimination award to Svetlana Lokhova, a former equity saleswoman.
But the latest earnings indicate the London business is continuing to turn a corner. The London business almost doubled its profit to GBP9.01mn ($11.9mn) last year from GBP5.3mn in 2018. It was loss-making 2017. The improvement comes after the parent lender made several capital injections totalling at least GBP155mn over the past three years.
bne IntelliNews reported last year that Sberbank has dodged the fallout of a potential no-deal Brexit by opening a branch of its Cypriot business in the heart of London. The cunning plan will allow Sberbank’s traders in London to continue to offer services across the entire European Union bloc if Britain, under the stewardship of Prime Minister Boris Johnson, crashes out of the EU without any deal.
With overall profits hitting a whopping RUB845bn ($13bn at the time) last year, the contribution of investment banking remains incredibly modest. Revenue from brokerage research and capital markets advisory for its UK unit only totalled GBP36mn last year.
Despite the change in strategy and a spate of recent deals, Sberbank CIB’s English-language website hasn’t been updated in three years. Sberbank also lags its smaller rival VTB, which makes double-digits in overall revenues from investment banking.
In August, the bank launched its Direct Electronic Access (DEA) business using the group’s infrastructure and technology platforms to offer clients direct access to the Moscow Stock Exchange. The product, which is similar to 'Direct Market Access' (DMA), is capable of processing thousands of client transactions per day with trading carried out via a high-speed connection and is in keeping with Gref's aggressive drive to enter the lucrative Big Tech sector.
Sberbank last month announced it is officially changing its name to Sber and relaunching itself as a tech company in a six-year rebrand costing RUB2.5bn ($32mn).
Gref, who has been at the helm for 14 years, loves new tech and fads and has previously fawned over cryptocurrencies and crowdfunding. The bank will now launch a TV streaming box, smart speaker and virtual assistant in a bid to compete with tech companies like Russia’s Yandex, along with Apple and Google.
One former senior executive at Sberbank said Gref often displays certain classical symptoms of ADD, or attention deficit disorder. He would become infatuated with some technology, convinced every time it was the biggest thing since sliced bread and then drop it months later for some other gizmo.
“When he’s wearing his virtual reality goggles, investors better hope he doesn’t forget about the bread and butter of banking,” quipped the executive.