Bloomberg News

Russia’s VTB Hiring 200 Bankers Under New Equity Pay Plan

February 21, 2012

(Adds details of share buyback from 15th paragraph.)

Feb. 9 (Bloomberg) -- VTB Capital, the leading organizer of Russian debt and equity sales, is seeking to hire about 200 bankers this year under a new incentive program linked to its parent company’s share price.

“We have about 1,300 employees now at VTB Capital and we are looking to grow by 15 percent,” First Deputy Chief Executive Officer Yuri Soloviev said in a phone interview yesterday. “We will be hiring in Singapore, New York and Hong Kong. We just hired an equity trading team in Dubai.”

VTB Group chief Andrey Kostin created VTB Capital in 2008 and pledged to spend $500 million building the business, including hiring Soloviev and more than 100 other bankers from Deutsche Bank AG. Within two years, the unit of the state-owned lender became the biggest organizer of Russian equity sales and the first domestic company in the post-Soviet era to underwrite the most bond sales.

The Russian investment bank is expanding in commodities, trade finance and derivatives this year as western securities firms eliminate jobs. Royal Bank of Scotland Group Plc, which got the world’s biggest bank bailout, said in January it will close its equities and corporate finance units, cutting as many as 3,500 jobs. UBS AG, Credit Suisse Group AG and HSBC Holdings Plc are also cutting thousands of positions.

No ‘Golden Hellos’

Inducements to join the bank are no longer commonplace now that VTB is established, Soloviev said.

The Dubai hires “moved over without any golden hellos,” he said. The bank hired four equity sales traders from Credit Suisse last year and as many as 12 bankers for its new office in Bulgaria.

VTB’s new three-year pay plan, in effect from this week, means some employees could have a majority of their remuneration in shares. The company is also introducing clawback provisions, where the bank won’t pay deferred bonuses in the case of employee misconduct or the underperformance of a division.

The need to overhaul VTB Capital’s pay structure was triggered by new requirements for its London operations introduced by the U.K. Financial Services Authority, Soloviev said. The company subsequently decided to extend the changes worldwide, including in Russia, where there are fewer restrictions on executive pay, he said.

“The intention is to better align the interests of the employee with that of the company’s shareholders by linking their pay and performance to the share price,” Soloviev said. “We believe the shares of VTB are undervalued, and this will represent a good deal for our employees.”

Half IPO Price

“Hopefully” other investment banks will follow VTB’s example, Soloviev said.

VTB shares slid 1.4 percent to 6.896 kopeks at the 6:45 p.m. close in Moscow time today, outpacing the 0.7 percent drop by the benchmark Micex index. While the stock is up 18 percent this year, it’s still about half the initial public offering price in May 2007. Dubbed the “people’s IPO” by then-President Vladimir Putin, that sale raised $8 billion.

The shares tumbled to a low of 1.9 kopeks in March 2009 before rebounding through 2010. They slid 42 percent last year as concern about a slowing world economy spread to Russia.

Soloviev said the new equity-linked pay system isn’t connected to VTB Group’s intention to buy back shares from retail investors who participated in the IPO. That plan was put forward last week by Putin, now prime minister, who is running to become president again in the March 4 election.

Shareholder Compensation

VTB’s shares surged as much as 4.3 percent after Putin told Kostin to put together a proposal to compensate investors. The buyback will be capped at 500,000 rubles ($16,800) per person at the 2007 IPO price of 13.6 kopeks, Kostin said at a briefing in Moscow today.

The lender will spend no more than 16 billion rubles on the buyback, which applies to investors who acquired shares in the IPO and still held them as of Feb. 1, he said. The buyback will be funded using the company’s capital and won’t affect 2012 profit, Kostin said.

VTB senior managers, who own shares in the bank, will not benefit from the buyback, he said.

“We shouldn’t be ashamed of our results and the bank,” said Kostin, who said the shares have outperformed other lenders, such as Italy’s UniCredit’s SpA. “The IPO was at the very height of the market and the tendency of banks throughout has been similar since.”

Analysts from Alfa Bank and Troika Dialog have criticized the plan, saying it would treat institutional investors unfairly while also diminishing the bank’s “fragile” capital base.

“The details are much milder than people are expecting,” Soloviev said. “Many retail investors were not particularly sophisticated or familiar with equity culture at the time of the IPO, and they didn’t realize that shares can go up and down.”

--Editors: Keith Campbell, Jon Menon.

To contact the reporter on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net

To contact the editor responsible for this story: Brad Cook at bcook7@bloomberg.net


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