U.S. banks Goldman Sachs Group Inc. (GS:US), Citigroup Inc. (C:US) and Morgan Stanley (MS:US) will find it harder to compete in Russia after sending their “second string” to President Vladimir Putin’s economic forum as the country tilts toward Asia, according to Alexis Rodzianko, president of the American Chamber of Commerce in Moscow.
“It’s all senior people here, but it’s not the CEOs,” Rodzianko, an American and former country head at Deutsche Bank AG (DBK) in Russia, said in an interview at the forum in St. Petersburg. “It’s disappointing because we are trying to compete, and it would be easier to compete with your top people than with your second string.”
Citigroup Chief Executive Officer Michael Corbat sent others in his place, and Goldman Sachs CEO Lloyd Blankfein was represented by Michael Sherwood, co-CEO of the bank’s London international unit. Morgan Stanley CEO James Gorman canceled his plans, a person with knowledge of the matter said earlier this month.
China is squeezing out Wall Street as a key source of funding for some of Russia’s largest companies. Most of the $27 billion Russia needs to complete its Yamal LNG project in the Arctic will come from state-run Chinese lenders instead of European and U.S. banks because of the threat of further sanctions over Ukraine, billionaire Gennady Timchenko told reporters in St. Petersburg yesterday. Putin this week concluded a $400 billion deal to supply natural gas to China.
“Already in 2020 we plan to double the bilateral trade, bringing it up to 200 billion U.S. dollars,” Putin, 61, told delegates today. “China ranks first in the country dimension as our trade and economic partner with trade volume of about 90 billion U.S. dollars. In tandem, we intend to continue to boost the role of the ruble and the yuan.”
The three-day event in Putin’s hometown, which concludes tomorrow, is the biggest international economic and business forum held annually in Russia. It was started in 1997 and has been held since 2006 under the patronage of the Russian president.
Vikram Pandit and Josef Ackermann both came to St. Petersburg most years when they led Citigroup and Deutsche Bank, respectively. The most senior western bankers scheduled to turn up this year are TPG Capital co-founder David Bonderman and Andrea Orcel, CEO of UBS AG’s investment bank.
“There will be a roll call by the Kremlin for those who couldn’t come,” Chris Weafer, partner at Macro Advisory in Moscow and former chief strategist at state-controlled Sberbank CIB brokerage, said by phone. “Companies and banks in particular that don’t send their most senior people to St. Petersburg will lose out financially as Russia accelerates its pivot eastward.”
Drew Guff, managing director of U.S. private-equity firm Siguler Guff & Co., said his 25 institutional clients invested in Russia told him to go to the forum.
“Unlike big public companies with millions of shareholders, we have roughly 25 Russian investors,” said Guff, whose firm manages more than $10 billion. “Each of those we spoke to said we have a moral, legal and fiduciary obligation to look after the $1 billion invested and to understand what’s happening on the ground.”
Juergen Fitschen, co-CEO at Deutsche Bank, was at the lender’s annual general meeting in Frankfurt yesterday after having been listed as a participant on the forum’s website in late March. Instead, Deutsche Bank sent a delegation including its Russia country head, Pavel Teplukhin, according to to an e-mailed statement from the German bank’s Moscow press office.
Nick Jordan, co-CEO of Goldman Sachs’s Russian business, and Denis Denisov, a spokesman for Citigroup, both declined to comment on their delegations to the forum. Hugh Fraser, a Morgan Stanley spokesman, didn’t reply to an e-mailed request for comment.
The U.S. has sanctioned members of Putin’s inner circle and is holding out the threat of broader economic penalties that risk disrupting business, from oil development in the Arctic and Black Sea to soft drink sales in Russia to contracts with the Ukrainian and Russian governments. A trigger for more action may come when Ukraine elects a new government on May 25.
American companies such as Illinois-based Caterpillar Inc. (CAT:US) lost out in 1979 when there were U.S. trade sanctions against the former Soviet Union, according to Rodzianko. Japanese manufacturer Komatsu Ltd. (6301) emerged “as a heavy equipment competitor as a result,” Rodzianko said.
“If things get worse, it’s a real possibility this could repeat,” he said.
Andrey Kostin, CEO of VTB Group, said Russia’s second-largest lender will seek a 200 billion rubles ($5.9 billion) of subordinated loans from Asian and Arab markets.
“Well, what markets are open?” he asked reporters in St. Petersburg. “Only these types.”
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