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Andrey Kostin: “My dream is to create an international banking franchise”


CHARLIE ROSE: Andrey Kostin is here, he is the Chairman and President of VTB Bank. VTB is Russia’s second largest bank, Russian state owns 75,5% of the company. In recent years VTB has moved into retail and investment banking. Kostin is here in New York for the opening of the NY branch of VTB Capital, the firm’s investment banking arm. I am pleased to have him here and have him back at this table, welcome.


CHARLIE ROSE: It’s good to have you here, because we are all interested in the global economy, and we are looking at Europe, we are looking at what could go wrong in terms of commodity prices, especially oil. So, give us your own sense of how you look and how you assess where we are in the global economy for both the developed countries, as well as emerging markets.

ANDREY KOSTIN: Well, if you look at emerging markets, we feel that it still produced quite a steady growth, we expect that Russia may be, will not have the highest GDP growth this year, but still we will be doing between 3,5-4% GDP growth. Of course, if we look at America, American economy, we have mixed feelings about this, but still probably better than one could forecast in Russia a year ago or two years ago. Of course, the remaining concern is about Europe. It looks that when everybody was saying that we left Greece’s debt behind us, that’s probably partly true. But on the other hand, we definitely saw that the important development was that European governments managed to establish some kind of a rescue mechanism for Europe. But the news coming from Spain, Italy and Portugal are not very much encouraging, so I still believe that the greatest area for concern will be Europe for the months to come.

CHARLIE ROSE: And so, what’s necessary to be done, if anything?

ANDREY KOSTIN: It’s difficult to say, because we are not facing such a crisis very often, but I think one of the answers is to strengthen international mechanisms for support, such as IMF, for example, and the World Bank, and Russia is seriously considering to provide a loan for IMF for helping such countries, which need help. And also, I think, Europe will have to do more in order to create a better, larger scale mechanism for support.

CHARLIE ROSE: Is China in some kind of inflection point now, because it has begun to suggest that it’s growth rate will not be in double digit, it may even be between 7 and 8%, it looks that some of the demand for its products and its markets may not be the same?

ANDREY KOSTIN: I’ve just come back from China, and my feeling is that though the economic development might slow down a little bit, this will not pose an immediate threat to the global economy, in my opinion.

CHARLIE ROSE: And do you scent that they are changing their attitude about their currency and the appreciation of their currency?

ANDREY KOSTIN: Well, I believe that the Chinese will be more flexible on the currency issue, but I still believe that a lot has to be done to convince them, that they will need this for the global trade and China as well.

CHARLIE ROSE: And what implications is it for all of us that you a bank that’s 75% state-owned?

ANDREY KOSTIN: Well, you see, the new Russian government which will be formed after the inauguration of Mr. Putin on the 7th of May, already made a quite clear statement, and the future Prime-Minister, Mr. Medvedev, that one of the key issues of the new government will be privatization of the Russian economy. The government is planning to sell shares of about 850 companies, including VTB. VTB is very much on top of the list for privatization, and the government is prepared to sell all the shares of VTB to private investors, including foreign investors, so we started, I personally initiated this process 5 years ago by selling 25% to global investors in New York, in London. And I’ll be happy to continue this process and to sell more shares, of course, subject to market conditions.

CHARLIE ROSE: So, when you sold that 25%, was that in a sense a kind of testing to see how it would be if you mixed state ownership with private ownership?

ANDREY KOSTIN: Yes, for us it was quite a radical leap, because we’d been 100% state-owned, then all of a sudden we became a joint-stock company with the participation of some leading hedge funds here on Wall Street, and it meant that we had to behave like any other listed company, by reporting to investors, meeting investors, answering questions to investors. And frankly speaking, with the government possessing the majority stake in VTB, the price of shares is defined not by the government, it is defined by funds here, because they are buying and selling, the government is not buying and selling. So for us, they are quite important investors in spite of the fact that they are minority shareholders.

CHARLIE ROSE: What kind of a bank do you want to create, other than a large one?

ANDREY KOSTIN: My dream is to create an international banking franchise, particularly focused on emerging markets. If you look at geography of VTB, we are present in 20 countries with particular focus on countries like Russia and CIS, but also China, Vietnam, African countries and so on and so forth. We strongly believe in the new economies, and I think we will be building up this franchise further.

CHARLIE ROSE: How will Russia be different when Mr. Putin comes back into power?

ANDREY KOSTIN: One has to see, there’s a lot of questions who will be Mr. Putin in his third term? Of course, Mr. Putin received very substantial support during the campaign...

CHARLIE ROSE: At the same time it did not go as he expected, and some people view that in a sense as a rebuff to him.

ANDREY KOSTIN: Yes and no, because I think that at the end of the day by having 64% of the vote in the first tour, I think Mr. Putin probably received more than many had expected. On the other hand, of course, there were some signs of discontent, of protest, which on the other hand is not so unusual for the world today, because I personally think that there is a time for growing unrest, growing unhappiness among people, partly as a result of the crisis, partly, in Russia, because some people are dissatisfied with Mr. Putin’s policy, that’s true. But I would not exaggerate, 50 or 80 or 100 thousand people were a very peaceful manifestation and a very broad range of different representatives, starting from sexual minority rights activists and hardline marxists-leninists to liberals, conservatives and other movements.

CHARLIE ROSE: So you are suggesting there’s nothing like the Arab Spring which will change Russia, a grass-roots uprising that topples the established order?

ANDREY KOSTIN: I think it is a signal which Mr. Putin heard, because Mr. Putin has, I think, quite a unique political intuition and he is really a politician. So I think he heard these voices, and that’s why I think in his new term he will be trying very much to push the country forward, to make those people also be a part of his team and to work further on building a more powerful Russia, both economically and politically.

CHARLIE ROSE: Is it your sense that Russia wants to have a role, some suggest, that Syria is an effort by Russia to say “We are players, and we are going to support Syrians because they ‘ve been our friends and we don’t abandon our friends” , and therefore what might have happened didn’t happen, because Russia took a stand and then China followed Russia rather than the West.

ANDREY KOSTIN: Well, of course Russia has vested interests in different parts of the world, just as well as America, we are not considering ourselves today as a superpower despite the fact that we have nuclear weapons. I think we are quite realistic on this, and we know that without building up economy you can hardly expect to be a leading nation in the world. On the other hand, Russian leaders on many occasions spoke against a unipolar world, saying that one country cannot define. What might offend Russia sometimes, when America despite the decision, or without a decision of the United Nations, making some actions which are unilateral. On the other hand, what raises concerns about, as you mentioned the particular case of Syria, and I spoke myself to American representatives, including American ambassador, what raises concern...

CHARLIE ROSE: You mean with McFaul in Moscow?

ANDREY KOSTIN: Yes. The West helps to replace the regimes in Arab countries, may be not very democratic, may be quite authoritarian, but as a result we see growth of radical Islamic movement in that country.

CHARLIE ROSE: Does that worry Russia?

ANDREY KOSTIN: Of course, because we have Islamic population in Russia, you see, the Chechen problem which we had. So on the one hand America is now trying to fight Islamic fundamentalists in Iran, on the other hand we might have the same kind of regime in Libya, or in Egypt, or in Syria, and I think that’s a great danger for the global political stability. So, I think we should work together on countries like Syria to keep the situation under control and not to allow Islamic extremists to take power.

CHARLIE ROSE: But it’s hard to stay in power if you are killing your own people? At the level and the range of the brutality that they have.

ANDREY KOSTIN: I agree, but the transition period should be smooth and it should be done together. Up till now we saw that those regimes are paving the way, when we remove these, or when the situation removes these regimes, we see a very dangerous development of Islamism in this country. And I think no one wants to have such a situation, it’s very dangerous. I think we should work together, the mechanism of the United Nations is very important, and I am glad that members of the United Nations managed to reach an agreement on a declaration of the United Nations. I think Russia will be cooperating with America on this issue, but we feel that should be mutual.

CHARLIE ROSE: Why isn’t Russia cooperating more with the United States on Iran?

ANDREY KOSTIN: Well, I think Russia, on one hand, because Iran is very close to Russia, much closer to than to America. We have our own interest in keeping peace in this region.

CHARLIE ROSE: And it’s a market for you and you have commercial relationships.

ANDREY KOSTIN: Yes, of course. On the other had, again, we see that some unilateral steps which America is taking, are somehow done without any consultation with the Russian government or without cooperation. Let’s take one example that the Russian government and Congress took a decision on freezing all the financial transactions between Iran and other banks, so we had to obey these, of course, fully. On the other hand, some people in Russia think that having dollar as a global currency, America is using this in their interests, which is not, actually, very much in line with the Charter of IMF or World Bank, for example.

CHARLIE ROSE: Does Russia wish that there was another, second reserve currency, that perhaps the United States should have the dollar as the...

ANDREY KOSTIN: We understand that dollar will stay as the major currency for the time being, but what we are trying to develop is definitely to use ruble as a currency for bilateral trade between Russia – the Ukraine, Russia – Belorussia, maybe Russia and some other countries.

CHARLIE ROSE: Russia has a dependence on natural resources, on oil and gas. How is it doing in trying to shift away from that dependence at the core of its economic power and develop, for example, its own Silicon Valley?

ANDREY KOSTIN: That’s a key issue for the Russian economy. When you ask, how Russia is doing, Russia is doing well because the oil prices are high, because other natural resources and commodity prices are high, but we still haven’t reached a substantial progress in actually transferring our country from the commodity, export-oriented...

CHARLIE ROSE: And why not?

ANDREY KOSTIN: Well, for a number of reasons. I think one is that we still did not create the proper environment for investments, we don’t have enough investments in these areas. Other things – Russia could not join WTO for a long time, and thanks to American administration, by the way, we managed to reach this agreement now, which also brings us closer to international cooperation and is paving the way maybe for more investment, more cooperation. Partly it is because Russia still did not succeed in certain reforms – legal system, Russia still has a very high corruption level and many other things, which create problems for more investment coming into Russia. But the focus is there, I think that both Mr. Putin and Mr. Medvedev will have another try to convert Russian economy into a more diversified economy within the next few years.

CHARLIE ROSE: Because you know the incoming President, Vladimir Putin, because you have had conversations and transactions with him, the impression in America is that he is surrounded by a group of former KGB colleagues, and that’s who’s running Russia. Is that true?

ANDREY KOSTIN: No, I would not say so, no. Of course, Mr. Putin is famous for being very faithful to his friends, that’s true, but that’s not a bad thing.

CHARLIE ROSE: And so was Mr. Yeltsin.

ANDREY KOSTIN: But not all of his friends are rich and not all of them are in business.

CHARLIE ROSE: But some of them are, who’ve gotten very rich.

ANDREY KOSTIN: Yes, but there’s nothing wrong in having rich friends.

CHARLIE ROSE: Well, but there’s something wrong with using the power of the state to make your friends rich.

ANDREY KOSTIN: No, but I think that is very much exaggerated, I think Mr. Putin does not have his children or daughters running large companies or things like this.

CHARLIE ROSE: That’s nepotism and corruption, but we are talking about a number of people that have gotten enormously rich, who basically, the only thing you can find in their background enable them to have such power is that they are friends of long-standing, many from Saint-Petersburg, with Mr. Putin.

ANDREY KOSTIN: I think Mr. Putin did a great contribution to the country when he was moving the country away from the oligarch system, and then really, during the Yeltsin era...

CHARLIE ROSE: ... including putting them in jail.

ANDREY KOSTIN: Well, that is a specific case, and I think that is, yes, that is a specific case...

CHARLIE ROSE: Are you comfortable with Mr. Khodorkovsky being in jail?

ANDREY KOSTIN: Do you know how the book of Mario Puzo starts with, “Behind every great fortune ther is a crime”?

CHARLIE ROSE: Yes, it’s true.

ANDREY KOSTIN: It’s very true about Russia, I think.

CHARLIE ROSE: Yes, it’s where Mario Puzo wrote “The Godfather”

ANDREY KOSTIN: Absolutely. It’s very true if you talk about Russia and the first stage of accumulating the first capital. So one can say about the selective approach here, but on the other hand, the question is whether Mr. Putin would be right to put a hundred people in jail instead of one. I think, the oligarch system, which was dominating Russia during Yeltsin era, was really a great danger, I think Mr. Putin moved it away to a much more competitive country in business, but if you ask me whether it was enough, I would say no. We still don’t have medium-sized enterprises, small enterprises and so on and so forth. I mean, Mr. Putin’s friends are still not among the richest. The 10 richest men, for example, in Russia...

CHARLIE ROSE: ... they came from Yeltsin era.

ANDREY KOSTIN: They came, some of them from Yeltsin era, some of them moved up later.

CHARLIE ROSE: Turn it around and look at us. After the fall of the Berlin Wall and after the break-up of the Soviet Union, did the United States miss a real opportunity to listen to Russia, to treat Russia with an understanding, it was going through tumultuous times?

ANDREY KOSTIN: I can’t complain. I would not complain, probably. If we talk about that with the business community, I think they are quite realistic, they understand Russia quite well. In mass media we probably would prefer to expect more understanding, we think that sometimes it’s a one-sided approach at this and American administration, well, certain things like Jackson-Vanik amendment. It’s still a surprise – why is it still there? So we definitely would like to see more cooperation, we very much hope, and I think there is a very positive development during Mr. Obama’s presidency between Russia and America.

CHARLIE ROSE: Interesting, your judgment is that the Obama administration has reset the Russian relationship, and that between the President of the United States and the former Prime-Minister and the incoming President there’s a very good relationship. Certainly there’s a good relationship between the incoming Prime-Minister, Mr. Medvedev, and the President. They really seem to get along very well.

ANDREY KOSTIN: That is always the case. The relations between the leaders of our countries or between Russia and European countries are always much better than in some other areas. I think the press is responsible for this. You should be more accurate in what you are saying about Russia and probably at some times, more understanding. Sorry to say, but that is our impression sometime. Politicians are probably more knowledgeable, may be more realistic, I don’t know. But we saw, may be reset was not as successful as we expected, and particularly we still have some argument about anti-missile system and so on and so forth, but it was a positive trend. And we very much hope that we can build this cooperation for the future, but we need more cooperation, politically, economically, America is very important for Russia, I have to say, and the relationship with America is very important. And we are definitely looking for more positive dioalog and more constructive relationships.

CHARLIE ROSE: New York is still the financial capital of the world?

ANDREY KOSTIN: Of course. Though we are diversifying, we are looking more and more at the new capital export countries like China or Gulf people. For Russia, they might become quite important investors.

CHARLIE ROSE: It’s great to have you here.

ANDREY KOSTIN: Thank you very much.

CHARLIE ROSE: I’m amused that you’re quoting Mario Puzo, and many Americans quote Tolstoi, so we look to each other’s novelists for insights to human character.


CHARLIE ROSE: Thank you for joining, see you next time.

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