RUSSIA BANKING INDUSTRY

Russia Banking Industry



CHAPTER 01: INTRODUCTION

Background

The term merger and acquisition are used interchangeably and are synonymous to each other, however, with slight differences. For instance, an acquisition occurs when an organization or firm establishes itself as an entity by taking over another firm through making a successful purchase deal. If looked at it from a legal perspective, the buyer or the purchaser of the company “gulps” down the business while the stock of the buyer is constantly traded. Besides this, the target company stops to exist and all its functions also come to a halt. On the other hand, a merger takes place when two companies, instead of continuing as two separate firms, agree to go ahead as a new single organization by merging into each other. Sometimes, this sort of process is known as the “merger of equals". In such an activity, often, the firms are of the same size, nature and scope. Once the merger has taken place, the stocks of both the companies are surrendered and the company issues its own stock. If we look at it with the practical aspects, there is not much frequency that the actual acquisitions would happen. Usually, it is an acquisition where one company buys another and allows the acquisition. However, in other terms, if the CEOs of both the companies feel that both firms would be benefited by joining together, then this purchase deal is normally also called a merger. Only in the case of an unfriendly purchase deal, it is called an acquisition.

Industry Background

Sberbank, Russia's largest bank and majority-owned by the Central Bank of Russia, has agreed to acquire Russia's oldest investment bank, privately held Troika Dialog. The deal diversifies Sberbank operations, giving it a prominent role in Russian investment banking. The deal should be finalized by the end of this year and the merger completed by 2013.

Russia's second largest bank, state-owned VTB, is also focusing intensely on investment banking. VTB24, the VTB Group's retail bank, has grown rapidly through, among other things, bank acquisitions. At the start of 2011, VTB purchased Russia's fifth largest bank, Bank Moskvy, from the City of Moscow. A privately held bank, Alfa, was also interested in acquiring Bank Moskvy.

Some experts are concerned about the consolidation of state banks' position in the finance sector. According to Oleg Vyugin, CEO of the private MDM Bank and former head of the Federal Financial Markets Service, state banks are preventing the growth of private banks. They e.g. benefit from access to considerably cheaper credit than private banks.

At year's end, 25 % of Russian banking sector capital was of foreign origin. In addition to the 80 fully-foreignowned banks operating in Russia, another 31 banks are majority-owned by foreign investors. Of course, the “foreign” owners in some cases are likely Russian as investment is made via registered firms from abroad. Among the wholly-foreign-owned banks, the biggest in terms of capital are the Austrian Raiffeisenbank, the Italian Unicredit Bank, the French Société Genéralé Vostok and ...