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Swedbank out to get Russians' money

MOSCOW. (Anatoly Gorev, financial analyst, for RIA Novosti) - Foreign banks are strengthening their foothold in the Russian financial market.

Following the example of U.K.'s HSBC, Swedbank, the leading bank in Sweden, Estonia, Latvia and Lithuania, has announced its intention to service individuals in Russia. It did not buy a Russian bank on the retail market, with its clients and outlets, but began from scratch, a new trend that is gaining momentum now.

Swedbank came to Russia in 2005, when its subsidiary, Hansabank, bought a small Russian bank, Kvest, for $3.14 million. Kvest was rebranded Hansabank in September 2005, making it a 100% subsidiary of Swedbank, and its authorized capital was increased by more than 70-fold, from 38 million rubles to 2.8 billion. This propelled Hansabank into the group of Russia's top 50 banks.

However, this did not help Hansabank to become a leader on the Russian market of retail banking. It bought Kvest for its banking license. Kvest did not have many clients or outlets, and was servicing a small group of corporate clients.

It took Hansabank two years to decide to change its Russian business from a specialized into a universal one. Apart from retail operations, it also plans to develop private banking (the provision of banking services to very wealthy individuals and families) and investment banking.

Hansabank does not seem intent on buying a Russian bank with a network of outlets and private investors to attain its goal.

According to analysts, Hansabank's decision to begin the conquest of the Russian retail banking market from scratch is part of the current trend. Major foreign banks coming to Russia no longer try to buy a local financial structure as a launching pad. Analysts say there are two explanations for that.

To begin with, the best have been taken over already: Raiffeisenbank bought Impexbank, Societe Generale owns a 20% stake in Rosbank, and Hungarian OTP acquired Investsberbank. They paid through the nose for these assets, but it was worth every cent, as they had large client bases, diversified credit portfolios, clear development strategies, and, last but not least, ramified networks of offices and branches.

There are solid banks with good reputation in Russia, but some do not want to sell to a foreign investor (a recent example is the Russian Standard bank), while others propose purchasing terms that do not suit potential buyers.

Few buyers are ready to pay four to seven times more than a bank's market capitalization, especially since such transactions are to be approved not only by the buying bank's top management, but also by its shareholders. The latter can blackball the deal if they decide that the price does not reflect the quality of the asset.

Italian Bank Intesa has recently decided to pay 7.2 times the market price for Ukrainian Ukrsotsbank. But its shareholders voted the deal down, saying that the asset was not attractive enough at such a high price.

The top executives of Russian subsidiaries of foreign banks started pondering the advantages of beginning from scratch. They know they will have to fight for their clients in this case, but that will cost them less than the acquisition of a dubitable asset which does not promise to grow 600%, or even 300%, in the medium term.

There is one more reason why foreign financial and lending groups have become wary of making sensational and highly expensive purchases in Russia. In the past, they bought Russian banks to accelerate their advance to the Russian retail market. Otherwise they had to wait for two years to get a retail banking services license.

But now they can get the license immediately, provided their asset has the required volume of the authorized capital. The norms set for the subsidiaries of major foreign banks are not unbearable. Thanks to their high ratings, they can borrow on international markets at an acceptable interest, and their parent companies will not leave them in the lurch either.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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