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Andrey Kostin: “It is quite rare, that three sovereign funds participated in one transaction, but that's exactly what we have now”

 
21.05.2013

Andrey Kostin: “It is quite rare, that three sovereign funds participated in one transaction, but that's exactly what we have now”.

Jimmy McGeever: Russian bank VTB is in the final stages of a protracted 3.3 billion dollar capital raising share sale. Sovereign investors from Qatar, Azerbaijan and Norway are among those buying in. Here to discuss this VTB CEO and chairman Andrey Kostin. Mr. Kostin, thank you for joining us! Well, these three countries are participating in this sale. Report suggests Qatar will put up 1 billion and other two — 500 million dollar each. Is this accurate?

Andrey Kostin: Not very and I would like to say that we haven’t completed the transaction yet, we expected to be done by the end of the week. So, allocation hasn’t been done, it’s a little bit early now to speak about this. But I think that all funds will be more or less similar in their packages rather than somebody will be leading the show. It is quite rare, by the way, that three sovereign funds participated in one transaction, but in this case that’s exactly what we have now.

Jimmy McGeever: That’s interesting. We were talking about three in particular. Are there any others you were talking to?

Andrey Kostin: We expected some other, what we call "anchor investors", but not sovereign funds.

Jimmy McGeever: What about Russian oligarchs and wealthy Russian investors? Are they interested in taking part in?

Andrey Kostin: Yes, very much so. But, as I said, we basically wanted to find the long-term investors where it will be even some lock-up for a bit of time. On the other hand, government also claims that government is not planning to issue any new shares or sale existing shares for the next 12 months. So, we expect it would be long-term minor investors, of course, sovereign investors are among them.

Jimmy McGeever: Ok. You’ve said, you want to use some of this cash before you present it on the domestic market, especially in the retail banking… What specific targets do you have in mind?

Andrey Kostin: You see, we need capital for tourism, one of this is that Russia is introducing Basel III standard on bank this year. If not this year we shall see the situation with Basel III is in Europe and America. It might be postponed till 2014, depending on other participants. But Basel III will require additional capital for all banks. On the other hand Russian banking sector is still developing quite healthy, we expect that this year our own book will grow between 15 and 20%. For both these reasons bank do need new capital and that’s exactly what we are doing now.

Jimmy McGeever: Could you give us an estimate on a split: 50% to raise capital, to beef up capital, and 50% for expansion plans?

Andrey Kostin: I think that probably for expansion plan will be even a bit more, but we shall see. We still don’t know the exact «fine print» of the Central bank introducing Basel III. For example, if the Central bank introduces Basel III in the model they are planning now that means that Russian banks will require 25% more capital than banks in Britain, Germany or America, which we are not very happy with. We are still in a dispute with the Central bank on this.

Jimmy McGeever: You posted 90.6 million revolves in profit in 2012, you said that the share will be under the record yield. Can you be more specific?

Andrey Kostin: We expect that the profit will be above 100 billion, of course, but we expect quite a healthy growth of profit. It still has to be seen how much exactly.

Jimmy McGeever: I want to turn to SoGen — Rosbank scandal. I know you don’t want to talk about it specifically. What is the rest of the Rosbank’s CEO do to the image of the banking system in your country?

Andrey Kostin: Because at the moment the person is not convicted, there is no decision of court, our judges. So from this point of view of any other country this person should be considered as innocent. I know the leadership of Societe Generale, I spoke to them as we are a shareholder of Rosbank, we have about 10% stake. Of course, concern about the situation, about the image, I think Societe Generale is a bank with very high reputation and I don’t think even if this proved that one person, even a senior guy made some wrong doings that this will affect the business of Societe Generale in general in Russia.

Jimmy McGeever: You don’t think that this kind of things will deter international foreign investors from investing in Russia?

Andrey Kostin: Not at all. Personally I have to say that though they failed competitors, I felt sorry that some of the banks for example the Barclay’s withdrew from Russia. Maybe they entered in a wrong time and in a wrong way but we very much welcome such an execution of Societe Generale. It played quite an important role in the Russian banking sector so we will see that we will be definitely be supportive as a shareholder for Rosbank to continue its activity.

Jimmy McGeever: I just say that you are a shareholder in Rosbank and SoGen were to sell a stake in Rosbank. Would you be interested in buying it?

Andrey Kostin: At the moment we are more on a selling side than buying.

Jimmy McGeever: I want to turn to Cyprus. Let’s finish up with Cyprus. Russia is negotiating the terms of course of it to not 2 million dollar loan to the country. Can you give us an update on these developments, on how VTB has taken part in these talks?

Andrey Kostin: President Putin was in Germany and made quite clear that Russia would be ready to negotiate. I think now the Ministry of finance of Russia in a process with a Cypriot side to negotiate. I think we will do it. Of course the general situation in Cyprus led us to make some questions. For example, Russian government wasn’t informed about the steps which the European Union was undertaking. This, of course, goes again to speed of G20 grip, for example. Particularly Russia was quite a large lender to the government but at the moment Cyprus government took decision and activity of the Russian banks is restored. We are not affected because we didn’t have any bad assets, we had enough liquidity, and we have never borrowed a single euro from the European Union Central Bank. So now our activities mostly restored for all international clients. That is the reason why the government can negotiate "the fine print".

Jimmy McGeever: Are you satisfied with the reassurances you have been given and will you continue to invest in Cyprus?

Andrey Kostin: We mainly had an activity for Russian or international clients in Cyprus, and we found this quite convenient because of the legislation there, because of good banking services and so on. Of course, for us it was the first blow which happened in March, then there were absolutely, I think, ridiculous proposals to haircut all deposits hold in all banks no matter in which condition the bank is. I think it was completely against the rule, any market rules.

Jimmy McGeever: But now when the situation was settled in some way, in the way when it was a bail-in of all deposit holders of the alien or bad banks. This at least had some market logic behind it. I have just heard from the press this morning in London that there is a suggestion that in other countries the same principles might apply. This is a possibility. I mean that is something which the European Union should decide by themselves, how they are going to treat the alien banks in the EU countries. Ok. Mr. Kostin, thank you very much for your time. It was Andrey Kostin, the chairman and chief executive of VTB. I’m Jimmy McGeever, this is Reuters.


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