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Controlling Interest
It is expected that a large number of actively-traded shares of Russian banks, which posted significant growth in 2005, will appear on the market this year. As before, however, the banks prefer to sell large chunks of shares to one buyer rather than concern themselves with minority shareholders. And no shares on the stock market are needed to do that. Hence the current situation, in which the growth in share prices is slowing down, despite recent excellent performances in the banking sector.
The number of shares of all Russian banks being traded on the market more than doubled in the year between July 1, 2005 and July 1, 2006. Even the slowest-growing bank, Promstroibank SPb, grew by 133%, overtaking the growth rate of the Russian Stock Exchange (111%). The fastest-growing bank, Vozrozhdeniye, grew by 441%, outperforming the RSE nearly fourfold. It would seem that this result is better than good. But there is a caveat: for the period from January 1, 2005 to January 1, 2006, almost all of the banks posted stronger growth than for the period from July 1, 2005 to July 1, 2006. For example, the year’s best performer, the bank Vozrozhdeniye, grew in the earlier period by 605%, versus its current 441%. Uralsib Bank’s share growth was 341%, versus the current 280%; Promstroibank SPb was 166% versus 132.6%; Bank of Moscow was 376% versus 353.7%; and Sberbank was 164% versus 155.8%. Only the Industrial Bank of Moscow has done well by this standard: it grew 364.2% in the latter period, versus an earlier 181%.
In addition, almost all of the current growth was provided by last year’s economic activity. For the first half of this year, the prices of shares in Promstroibank SPb and Vozrozhdeniye declined (by 9% and 7%, respectively), while share prices for the other banks grew, but at rates that were decidedly less than stellar. The largest increase for this period was demonstrated by the Industrial Bank of Moscow, which weighed in at only 37%.
It is, however, worthwhile to note that those banks whose shares have been being traded for a relatively short period of time have shown more impressive growth rates. Petrokommerts, for example, grew 250% in the first half of this year, while Zapsibkombank posted a rate of 101%. As such, the unimpressive performances of the “veterans” could be attributed to a natural correction, all the more so since no less an important economic indicator than the ratio of capitalization to capital in the largest banks has remained practically unchanged for the last six months. Sberbank showed an increase from 2.7 to 2.9, and Uralsib went from 2.8 to 2.9, while Bank of Moscow showed a slight decrease, from 2.3 to 2.1. More substantial decreases in capitalization to capital ratios were posted by Vozrozhdeniye (from 3.5 to 2.5) and Promstroibank (from 2.7 to 2). Meanwhile, the same ratio at the growing Industrial Bank of Moscow increased from 0.2 to 1.2, while at Petrokommerts and Zapsibkombank, both of which just recently began to be traded, the ratio had not yet reached unity (0.7 and 0.4, respectively). However, at the same time the discussions about correction that are heard on the stock market after a period of furious growth are groundless when applied to banks. After all, for many years the only Russian banking shares really traded on the market whose prices are set by the market’s mechanisms have been shares in Sberbank.
At the beginning of the year, it seemed that the situation surrounding banking stocks would soon change. Several large Russian banks – Bank of Moscow, Rosbank, and Vneshtorgbank – announced the launch of their IPOs. What is more, the idea to make all large banks go public even germinated in the depths of the Bank of Russia. A real boom in the appearance of new banking shares on the market was expected this year. But thus far, there has been nothing of the sort.
The Bank of Moscow changed its plans. Rosbank, which had loudly announced its impending IPO, sold 10% of its shares this summer to the French group Societe Generale and put off its public launch until a more auspicious time. Vneshtorgbank initially intended to go public this fall, but the plan has been shelved until the beginning of next year, and now it is difficult to say when exactly it will happen. The Bank of Russia, which met with dumb incomprehension from the banking community, no longer mentions its plan for a general IPO from all large banks.
Of course, Russian banks would very much like to resemble their Western counterparts. Not for nothing was Russia one of the first countries to switch to international standards of financial accounting: its banks receive ratings from worldwide agencies and even invite independent foreign directors to serve on their boards. But on this path there are two serious obstacles: the mindsets of the bankers themselves and their surrounding milieu. It is very difficult for a Russian banker to imagine that he, like bankers in the West, could control a bank by owning 10% of its shares and thus by being its main shareholder. Upon “freely floating” even a small number of shares, a bank here immediately braces itself for the appearance of raiders, or at least quarrelsome minority shareholders.
It is sufficient to remember some of the more famous incidents involving the distribution of shares in Russian banks to understand that our bankers immediately try to sell a controlling interest. For example, when Impaksbank was sold to Raiffeizen Group, rumor had it that there was a different foreign buyer who had offered an even bigger sum, but the deal would have taken a significantly longer period of time. The management of Impaksbank gladly sacrificed the possible premium price in favor of quick liquid capital. The Russian Standard Bank tried to take a similar path, but it ultimately could not reach an agreement with the buyers.
In a pinch, Russian bankers will agree to sell a packet of shares ranging from 10% to a blocking amount to a strategic investor, but with the long-term aim of selling the investor a controlling stake. It appeared that Rosbank planned to take this path – rumors of its sale first to an English banking group, then to an Italian group roiled the Russian market for some time – but finally the company decided on French buyers.
As a result, in Russia only Sberbank can boast of having the same large number of minority shareholders as the prominent Western banks. And even Sberbank begins to get noticeably nervous when the conversation turns to the Bank of Russia withdrawing its capital or even to the possibility of a decrease in the Bank of Russia’s share to less than controlling.
After all, however, it is precisely a large number of minority shareholders that can significantly increase a bank’s transparency, a serious plus in the eyes of foreign investors that can push up the price of the bank’s shares. But so far, Russian bankers pay far more attention to their fears of potential complications with minority shareholders and raiders, as well as the attendant loss of rigid control over their banks, than they do to potential benefits. Thus, it makes no sense to await the imminent arrival on the stock market of large numbers of actively-traded stocks from Russian banks.
&Takeoffs and Free Falls
Assets
In absolute terms, in the second quarter of the year the largest asset growth was posted by Sberbank, to the tune of 258 billion rubles. In second place was Vneshtorgbank (82 billion rubles), following by Rosselkhozbank (60 billion). Trailing the top three were Bank of Moscow (43 billion) and Vneshtorgbank’s retail services (30 billion). And if Rosselkhozbank takes first place in relative growth percentage (67.67%), Vneshtorgbank’s retail services come in fourth (57.05%), after Moscow Deposit Bank (67.13%) and Moscow Mortgage Agency (63.57%). The only bank in the top ten whose assets declined was Rosbank (1.6 billion rubles). The largest declines in assets were demonstrated by ABN Amro (9.3 billion), ING Bank (5.2 billion), and KhKF Bank (4.9 billion). Percentage-wise, ABN Amro fell by 26%, while first place was taken by Vizavi (32.6%).
Capital
Among 200 large banks, the largest growth in capital was shown by Sberbank (32.6 billion rubles). Second was Gazprombank (11.9 billion), and third was Vneshtorgbank’s retail services (5.7 billion). The top five in terms of absolute growth of capital included two banks that grew by about 75%: Zenit Bank (78.4%) and Vneshtorgbank’s retail services (72.3%). It is impossible not to mention that two of the five largest banks took a hit in capital: Vneshtorgbank (declined by 6 billion rubles) and Uralsib Bank (by 3.6 billion rubles). In terms of absolute measure, these two banks significantly outperformed the rest, but their relative drop in capital pushes them out of the top ten in that indicator.
Liability
The largest liability growth in absolute terms for the second quarter was posted by Sberbank (255.7 billion rubles). Second was Vneshtorgbank (7.6 billion), while third was Rosselkhozbank (5.6 billion). In relative terms, Rosselkhozbank leads the pack with a percentage growth of 73.5%. Out of the 200 largest banks, only Moscow Mortgage Bank showed hefty liability growth (86.3%). Of the ten largest banks, only Rosbank had a decrease in liability, and the decrease was all of 120 million rubles (0.06%). First in decreasing liability was ABN Amro (11 billion rubles), followed by ING Bank (5.2 billion) and KhKF Bank (4.9 billion). ABN Amro retained first place in relative liability declines as well (34.2%), while Dresdener Bank (27.4%) and Trust investment bank (23.5%) followed.
Holdings
The largest absolute growth in holdings for the second quarter was posted by Sberbank as well (122 billion rubles). Second was Vneshtorgbank’s retail services (11.2 billion), and third was Raiffeisan Bank (4.4 billion). In relative terms, among the 200 largest banks the most successful at attracting deposits was Deutsche Bank (392.3%), far beyond KIT-Finance Bank (151.7%) and Sudostroitelny Bank (131.2%). Vneshtorgbank (20 billion rubles) had the largest absolute decrease in holdings value, but it was almost caught by ABN Amro (16 billion rubles), followed by Uglemetbank (11.2 billion). Relative holdings declined at Uglemetbank (51.1%), ABN Amro (38.9%), and Junker Bank (25.4%).
Credits
The largest growth in the volume of credit extended was at Sberbank, with 205.6 billion rubles. Second place was Rosselkhozbank (33.1 billion), and third was Alfa Bank (31 billion). In relative terms, Rosselkhozbank (57.1%) dominated the competition in the top five. But out of the largest 200 banks, Moscow Mortgage Agency posted 127%, while Moscow Deposit Bank (105.8%) and Moskommertsbank (92.3%) followed. Among the 100 largest banks, only three saw a second-quarter decline in the volume of credit extended: CitiBank (1.1 billion rubles), Promtorgbank (0.17 billion), and Metallinvestbank (0.56 billion). Only Vizavi Bank (4.1 billion rubles) overtook CitiBank in credit declines.
Consumer Credits
In absolute terms, the largest growth in consumer credits was again at Sberbank (68.3 billion rubles). Rosbank (10 billion) was second, while second place by volume of consumer credit and third place by growth was Russian Standard Bank (8.3 billion). In relative terms, first place was unquestionably taken by Moskommertsbank (773.1%), followed by Moscow Deposit Bank (431.6%) and Rosselkhozbank (331.5%). Among the top ten, only KhKF lost ground on volume of consumer credit (1.8 billion rubles), a figure outdone only by Vneshtorgbank (3.3 billion).
Table 1. Most Profitable Banks of Russia (As of July 1, 2006) >>
Table 2. Bank-Losers (as of July 1, 2006) >>
Table 3. 200 Biggest Banks in Equity (as of July 1, 2006; ths rub.) >>
Table 4. 200 Biggest Banks in Net Asset Total (as of July 1, 2006) >>
by
From the journal Money
All the Article in Russian as of Sep. 04, 2006
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