U.S. Banks Cautiously Bullish on Russian Bear
Kraus, James R., American Banker
Six years after throwing off the shackles of Communism, Russia still looms as a question mark for many Western bankers.
The country is still dogged by rampant crime, lack of clear laws and management expertise, outmoded industries, transportation, and communications, and a secretive political culture.
"The key question remains the same: Will the political leadership be willing and able to challenge the country's deep-seated vested interests and monopolies in order to create a true market-based system?" said Betty J. Starkey, head of sovereign risk review at the Thomson BankWatch. The credit rating agency is an American Banker affiliate.
A number of U.S. banks doing business in Russia-including Chase Manhattan Corp., Citicorp, and State Street Boston Corp.-are betting that the answer to the question is yes. Given the size and scale of the potential business in Russia, the country's vast natural wealth, and the availability of highly educated work force, they feel that Russia is an emerging market that can't be ignored. Though the country's gross domestic product has fallen in recent years, analysts expect 1997 will prove to be a turning point and production will begin to recover.
"There does indeed seem to be a certain cautious optimism that has been buoyed by the rise in the stock market and the government reshuffle in early March, which put reformists into a real leadership position." said Derek Hargreaves, an analyst in the economic research department of J.P. Morgan & Co.
Said Sergei Boboshko, senior country manager and president of Chase Manhattan Corp.'s Moscow-based subsidiary: "You can't judge progress on a day-to-day or month-to-month basis. But I've been here three years, and during that time Russia has made enormous progress."
Chase Manhattan Corp. opened a banking subsidiary in 1993, becoming the first U.S. bank to partake of a post-Communist Russia. Citicorp followed a year later
Last year, Republic New York Corp. opened its own subsidiary, J.P. Morgan & Co. opened a Moscow representative office and Citicorp boosted the capital of its Russian subsidiary to $50 million from $15 million. Just this week, Citicorp purchased Ducat Place I, one of Moscow's premier office buildings, to become the center of its expanding Russian operation.
Meanwhile, riding a 150% increase in the Russian stock market and a surge in trading in Russian securities, State Street Boston Corp., Bank of New York Co., and Citicorp have entered the custodial, clearing and settlement business. Bank of New York is also heavily engaged in setting up American depositary receipt programs for Russian companies.
For most banks, the most popular song in Russia today could well be "Gimme that ole-time lending."
Corporate lending may be a dying business for banks in the United States, where big companies are going to capital market for their borrowings, but it's only beginning to get under way in Russia. There many companies prefer to borrow from banks because meeting U.S. disclosure requirements for bond underwriting is still too difficult.
And from the looks of it, banks are prepared to swallow the risk of doing business with Russian companies, provided they can get the right guarantees and sky-high spreads. …