By Jason Corcoran and Anna Baraulina
A sign outside the headquarters of JP Morgan Chase & Co in New York.
Bankers from JPMorgan Chase & Co. (JPM) to Morgan Stanley are leaving Moscow for London as sanctions over Russia’s incursions into Ukraine bring business to a halt, according to people familiar with the matter.
JPMorgan’s head of Russian research, Alex Kantarovich, and four other employees are moving to the U.K. capital to work on different regions after Morgan Stanley’s metals team of Dmitriy Kolomytsyn and Neri Tollardo did the same, people familiar with the matter said. The banks declined to comment.
“We are increasingly receiving resumes from Moscow-based candidates with a non-negotiable requirement to be relocated to London,” Luis Saenz, head of equity sales and trading in London for Moscow-based BCS Financial Group, said by phone. “It seems they are desperate to get out.”
Fees from arranging loans, bonds and share sales were on track to halve this year, according to data for the first eight months of 2014 from Freeman & Co., a New York-based consulting firm. U.S. and European sanctions have all but closed financial markets to Russian companies. The ruble tumbled 23 percent against the dollar in the past three months, the worst performance among more than 170 currencies Bloomberg tracks, while the dollar-based RTS Index (RTSI$) 30 percent this year.
‘Unhappy’ bankers
With deal flow slowing to a trickle, Paris-based BNP Paribas SA (BNP) transferred a senior foreign currency saleswoman to London last month and may do the same with several others, a person with knowledge of the bank’s staffing said, declining to be identified because the information is private. BNP Paribas officials declined to comment.
Deutsche Bank AG (DBK) is transferring David Johnson, a trader in Moscow, to the U.K. to take up a new role, two other people said. Deutsche Bank also declined to comment.
Mikhail Galkin, head of credit research at VTB Capital in Moscow, resigned to work for Goldman Sachs Group Inc. in London, according to two people with knowledge of the move.
Some banks are reluctant to cut staff in order to avoid offending the Kremlin, betting they’ll be rewarded with mandates from the government and state-run companies once sanctions are lifted, said Nick Rees, country manager for Russia at recruitment service SThree Plc. (STHR)
“The general belief is that the markets will definitely recover and only those who stay during the tougher periods will reap the benefits,” Rees said by e-mail. “The banking sector is definitely hurting and the plethora of resumes and calls I’m getting suggest that not only are many people heading to London, most of them are very unhappy about these moves.”
‘Sustained conflict’
Goldman Sachs and Lehman Brothers Holding Inc. were among the international banks that left Russia or scaled back after then-President Boris Yeltsin’s government defaulted on about $40 billion of debt in 1998. Many of them returned in the 2000s to capitalize on a global commodities boom and opted to scale back rather than leave the country again after the global credit crisis and Russia’s war with Georgia in 2008.
“This crisis is much worse than 1998 and 2008,” Bernie Sucher, a board member of Moscow-based Aton Capital and a former country chief at Bank of America Merrill Lynch, said by phone. “Russia was on a convergence path with the West before, but now it’s in sharp conflict and it’s putting together an ideological framework for a sustained conflict, which the West seems to welcome.”
This crisis is different than the previous two because it’s political in nature and can end if “one person” wills it to, Sucher said, referring to President Vladimir Putin.
“Unfortunately, he hasn’t decided to do so,” said Sucher, a Detroit native who co-founded Troika Dialog, now Sberbank CIB, in 1993.
Cash crunch
Sanctions have curtailed Russian access to dollar and euro funding, leading to a cash crunch for companies that have $44 billion of debt due by year-end, according to central bank estimates. As a result, the value of mergers and acquisitions has plunged to $27.3 billion so far this year from $58.3 billion in the same period last year, data compiled by Bloomberg show.
Only one Russian company, supermarket chain Lenta Ltd. (LNTA), has held an initial public offering this year, raising almost $1 billion in February in London. That compares with at least three IPOs last year, which raised a combined $1.65 billion for lender TCS Group Holding Plc (TCS), instant payment operator Qiwi Plc (QIWI) and the Moscow Exchange, the country’s largest bourse.
International banks have an incentive to maintain Russian operations even when business is slow: to avoid being cut out of future deals, said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington.
“Russian memories are long and if things return to normal in two years, those who left will be remembered and not be invited back,” Hufbauer said by e-mail.
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