VTB accelerates relocation to Frankfurt as UK losses balloon to $213mn

 VTB accelerates relocation to Frankfurt as UK losses balloon to $213mn
The august facade of VTB Bank's London offices. / bne
By Jason Corcoran in Moscow August 23, 2021


Kremlin-controlled lender VTB has moved its chief executive and chief operating officer from its London investment banking business to Frankfurt in the wake of a strategic business review and as its UK operation’s losses have quadrupled to $212.7mn, bne IntelliNews can reveal.

In a recent filing to UK Companies House, chairman Philip Dayer disclosed that bank had overhauled its management in London, with its CEO and COO both transferring to VTB Bank’s fast growing European base in Frankfurt. In a comprehensive 151-page earnings disclosure, Dayer said the decision was taken “to the help with the continued development of the group’s European platform.”

The move comes after the Russian bank’s parent in Moscow initiated an overhaul of its business to reduce its presence in the UK and to build out a trading book capability at its European subsidiary VTB Europe (SE) in Frankfurt.  That had led to business lines and other bankers being relocated from London to Frankfurt in the wake of Brexit and the retention of severe sanctions against the bank.

In an August 5 interview with German newspaper Handelsblatt, group chief executive Andrey Kostin said VTB "has relocated substantial parts of our business and around 100 people from London to Frankfurt” since the start of the Brexit process. The Frankfurt operation now has total assets worth €8bn and mainly focuses on European companies doing business in Russia and vice versa.

The July filings also reveals that VTB Capital plc, the UK business, last year reported a quadrupling of losses to $212.7mn compared with a post-tax loss of $59mn in 2019. The bank said the loss for the year “is 100% attributable to the legacy portfolio, with the new target operating model producing a small profit.”

VTB, which once boasted a headcount of over 600 bankers in London, further cut this number by the end of December last year to 143 from 179. The bank previously told bne IntelliNews that "the target headcount" is 120 people, which entails a further 23 jobs losses.

The bank last year retained its status as the leading arranger of mergers and acquisitions in Russia as well as in equity and debit capital deals. However, the volume of capital market activity shrank after the pandemic led to sharp fall in global economic activity.  Notable deals for VTB included its role in the IPOs of shipper Sovcomflot and online retailer Ozon, the acquisition of Highland Gold by Fortiana Holdings, a sovereign Eurobond issue by Uzbekistan and bond sales by Russian corporates such as Norilsk Nickel, Sibur and Alrosa.

VTB is trapped in an expensive lease for its European headquarters in London for another three years even as its builds up a new investment base in Frankfurt.

Russia's second-biggest bank signed a 20-year lease in 2008 for its office bang in the heart of the City’s financial district on Bank Junction, immediately adjacent to the Royal Exchange, the Mansion House and the Bank of England.

But VTB only occupies two of the five floors and has entered into lease agreements to sub-let three of the floors it doesn’t use.

“The group has the option, as stipulated in the agreement, to first break the lease in August 2024,” said the filing. “Office space for the five floors at 14 Cornhill, London as the lessee, have the lease term of twenty years to February 2028.”

As part of an initial retrenching, VTB closed its fixed income cash bonds business in Hong Kong and dumped its loss-making Wall Street operation in a management buyout. Previous filings show that VTB lost $1mn after vacating the lease early for its Wall Street base. At one stage, Kostin even threatened to remove the bank's listing from the London Stock Exchange (LSE) in favour of China.

Kostin, who himself was sanctioned, has accused the UK regulators of making excessive demands on the UK operation due to Russia’s conflict with Ukraine. A former Soviet diplomat, Kostin also caused a stink in September 2018 after describing the current British Prime Minister Boris Johnson as a “jerk” at a press conference in Moscow.

In late 2015, New York-based Evercore Partners ended its deal-making joint venture with VTB due to US sanctions. As business has dried up in the US and the UK, both VTB Capital (VTBC) and its parent have made an aggressive push to secure more business in Africa and Asia, with mixed results.

The move to Frankfurt has been in the works for a while. In 2017, Kostin first told Handelsblatt about his plans to bundle its European businesses in a new HQ in Frankfurt.

"We want Frankfurt to be the headquarters for this bank because we believe that this city will become an even more important centre for financial activity after Brexit," said Kostin, who added that VTB may yet remain in London in some capacity. 

The bank said VTB Capital Zug in Frankfurt has "now become the heartbeat" of its international commodities business following the merger of three of the group's entities across continental Europe.

In its heyday, VTBC contributed a third of its parent’s profits, but those days appear to be long gone as it fights for relevance amid sanctions and a global recession triggered by COVID-19.

A former VTB executive in London told bne IntelliNews that he believes that the lender will retain a UK presence, albeit a much diminished one. “Frankfurt is politically a much better bet and fit for Russian bankers now,” said the banker. “Once they can break that lease, VTB will move to a much smaller and more discreet office.”