Financial Crisis Putting Bankers' Jobs on the Line

MTEmployees of top investment banks like Renaissance Capital and Troika Dialog face smaller bonuses and layoffs.
Russian investment banks have started slashing staff as a deepening crisis threatens to stall a 10-year economic boom that had made Moscow a honey pot for bankers and traders seeking multimillion-dollar salaries.

The crisis has hammered investor confidence in the country as falls in world prices for oil and natural resources and concerns about record corporate borrowing revived concerns about economic stability, sending equity and bond markets tumbling.

The country's banks, which expanded rapidly over the past decade, have seen trading, investment banking and asset management revenues plunge, and bonuses are being minced, bankers said.

Renaissance Group, owner of one of the top local investment banks, may shed about one-quarter of its jobs, said a person with knowledge of the matter. Troika Dialog, another major local player, may let hundreds go, said a source close to the bank.

"The best bonus you can have in Moscow right now is to have a job at all," said Oleg Galkin, who helps manage $2 billion at UralSib.

Bankers said the landscape of the market was likely to change as state banks -- such as VEB -- and some foreign banks strengthen their investment banking operations in Moscow.

The booming economy -- which saw GDP rise to $1.3 trillion last year from less than $200 billion in 1999 -- fuelled a bonanza in equity and corporate debt issuance, earning bankers bonuses on a par with those in London or on Wall Street.

Boom-time swagger, however, has been replaced by fear after the crisis forced even Oleg Deripaska -- ranked in May as the country's richest man with a fortune of $28.6 billion -- to turn to the state for financial help.

"Brokerages are not making any money and people are being sacked," said one equity trader at a major international investment bank in Moscow, who asked for his name not to be used.

"Don't even ask me about bonuses -- people are happy just to have jobs right now," the trader said.

The country's benchmark RTS Index tumbled 12.5 percent Wednesday and is now down more than 70 percent over the past six months.

Investment bankers have a love-hate relationship with the country's economy, cutting staff during the many crises and expanding to reap the lucrative rewards when times are good.

Many bankers left Russia in 1998, vowing never to return after the government defaulted on $40 billion of debt, unleashing a wave of volatility that lost banks billions of dollars and helped to sink Long-Term Capital Management.

But the bankers returned as the economy boomed, attracted by juicy fees for debt and equity sales and scores of mergers as the country's billionaires went on a debt-fuelled spending spree.

"When little boys and girls at the investment banks are making $500,000 a year, that is the real crisis," Sergei Galitsky, the chief executive of retailer Magnit, told an investor conference.

Bankers now face anemic markets, a dearth of credit and the prospect of a Siberian winter with little Russian issuance.

"We are seeing a lot of resumes from people who are expecting their bonuses to be hit badly and thinking about moving," said Yury Rubinovich, managing partner of Inter-Capital, a headhunter with a strong position in the country.

"People were getting unprecedented salaries in Moscow over the past eight years. That is unfortunately coming to an end," he said.

Equity issuance was forecast to total more than $50 billion this year, but just a tiny fraction of that has been placed as the benchmark RTS Index tumbled. Debt markets remain closed for even top-tier emerging market companies.

Some international banks have laid off a few people in Russia partly as a result of global cuts, but most have not yet decided to slice net head counts. Some are even hiring.

Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS have each let a few staff go in Moscow, according to banking sources.

A Deutsche Bank spokesman denied any cuts and said the bank was hiring. A spokeswoman for Goldman declined to comment, as did spokesmen at Morgan Stanley, Merrill Lynch and Renaissance.

"We, net, through the end of the year, will be up on personnel," said Steven Meehan, UBS CEO for Russia and the CIS. "We will have a few natural redundancies, a few, not many, but we have a mandate to hire between now and the end of the year."

A source at Credit Suisse said the bank was still hiring. Citigroup said no cuts had been made in Moscow.

Troika CEO Ruben Vardanyan said Monday that Troika will look at cutting between 7 percent and 15 percent of its workforce.

State-owned VEB bank, entrusted with distributing tens of billions in state bailout cash, will be looking to add staff.

"There are quite enough professionals on the market at the moment," Kremlin aide Arkardy Dvorkovich said with a smile.