Bad Time For Some, Others Cash In

MTA woman walking past the advertising banners of a pawnbroker — one of the types of businesses reporting heightened activity during the financial crisis.
Editor's note: This is the 10th in a series of reports about the effect of the global financial crisis on Russia.

Investment banks are laying employees off by the hundreds, developers are freezing projects and oil firms are lining up to receive government aid. At some companies, however, business has never been better.

"We're seeing at least three to four times more cases lately," said Nikolai Ivanov, the deputy director of USB Credit Collection Agency. "We were getting around 1,000 to 2,000 credit portfolios turned over to us monthly. In the last few months, it's been more like 6,000 to 8,000."

The company, which according to its web site "creates an atmosphere of maximum discomfort and tension around debtors … forcing them to speedily return their money," is used by banks to search out clients who are lagging behind on payments and convince them to settle their obligations. In October alone, USB received $80 million in debts for collection — a record, Ivanov said.

Credit collectors, lawyers, business schools and even fast food companies are among those that are seeing the crisis as a once-in-a-lifetime opportunity. In Ivanov's case, it is a chance to profit from delinquent debtors, some of whom stretched themselves thin during boom times and gave no thought to what would happen if things turned around.

A typical delinquent debtor, Ivanov said, is younger than 30 and in debt because "their desires did not correspond to their financial capabilities."

"They go into debt because of their stupidity," he said. "They borrow money thinking they can handle it, then something happens in their lives, or the economy changes, and they start missing payments, and the charges start piling up."

Other debtors are older and become delinquent because of a major life change, such as a layoff or divorce.

While the financial crisis has not yet produced a significant increase in the amount of delinquent debtors, Ivanov said it has affected the amount of time that banks now wait before turning to a collection agency.

"Banks used to spend months looking for these people on their own before turning them over to us," he said. "Now they do it much sooner, sometimes as quickly as 10 days after a missed payment.

"Bank-to-bank lending is low, and they need the cash."

Ivanov said the amount of unpaid debts by private individuals would eventually ebb because banks have begun lending more selectively and demanding more collateral for loans. However, he predicted a looming credit collection boom tied to corporations unable to meet their debts.

"Next year will be a golden year for credit agencies," he said. "We've seen a huge jump in corporate debt collection, especially from European clients trying to collect from Russian corporations."

Ivanov said that among his corporate clients were "two very large European wireless firms seeking to recover tens of millions of dollars each from Russian companies."

In order to collect money from private individuals, USB bombards them with phone calls, visits their homes, serves legal papers, and if necessary, calls in a state marshal to confiscate their properties.

When it comes to collecting debt from corporations, however, the tactics change.

"We engage in a bit of corporate espionage," Ivanov said. "We search out their weak points, places we can apply pressure."

One tactic that Ivanov said has been effective in the past is threatening to call a company's partners and suppliers, as well as its other creditors, and letting them know that the company is delinquent in paying its debt.

"This puts the company in a bad light and makes it much harder for them to obtain goods on credit or get credit at the bank," he said.

"In short, our entire strategy is to convince a company that it is much more in their interest to settle up than to fight."

One way people have been avoiding calls from creditors is by visiting Vremya, a pawnbroker near the city center that specializes in offering loans in exchange for expensive watches, which are then held as collateral. Like USB Collection, the shop has reported an increase in business that they attribute to the crisis.

"More people have been bringing in watches, and fewer people have been redeeming them," said Lyudmila Sevtsova, the shop's director.

Vremya charges a monthly interest rate of 18 percent on items it holds as collateral.

"We've been seeing much more small and midsize businessmen who have run out of money and are unable to get credit at the bank," Sevtsova said. "We also get young women who have been given a watch as a gift, but the number of those has remained the same."

Private entrepreneurs aren't the only ones that have been feeling the credit crunch. As the crisis gains momentum, the corporate landscape is beginning to shift, with some firms being bought out by better-positioned competitors while others go out of business altogether. A bad business environment for corporations, however, can be a good one for the law firms helping them negotiate the country's labyrinthine legal code.

"We're actively advising Russian and foreign corporate clients on various crisis-related issues, including dispute resolution, emergency funding, mergers and acquisitions," said Dmitry Afanasiev, chairman of Egorov, Puginsky, Afanasiev and Partners, a law firm specializing in corporate practice.

"Everybody is under pressure to act," he said.

Afanasiev said his firm has experienced a 30 percent jump in business in the past few months and predicted that the crisis could be beneficial to some law firms.

"This will be a good time for large law firms like ours. More law will be applied to transactions as a result of the increasing role of the state in economic matters," he said.

Mergers, acquisitions and bankruptcies can also put jobs at risk, especially when they occur during a crisis. One way people have been dealing with employment uncertainties is by beefing up their business education, said Yevgeny Pluzhnik, the general director of Moscow Business School.

"When the economy goes into a recession, people begin investing in their education," he said.

Pluzhnik said the school has seen a 15 percent to 20 percent jump in applications during the past three months, although enrollment has not actually grown because potential students are taking longer than usual to make up their minds about making a financial commitment.

"Many of them are senior managers who feel their jobs might be under threat," he said. "By furthering their business education, they feel they might have a better chance of being kept on, or at the very least finding a new job if they do get laid off."

Not everyone worried about work sees education as the answer. Business Relations, a company specializing in business-related personal growth seminars, is offering a variety of "anti-crisis programs" to help guide corporate workers through tough times.

"We've recently gone from having just two phone lines to having six," said Ivan Maurakh, one of the company's trainers. "People want a competitive edge these days. They would rather use their time and money for self-development."

According to the company's web site, executives are taught how to motivate themselves and their employees, deal with layoffs and raise productivity under crisis conditions.

"We're seeing people who have been fired as well as people who have kept their jobs," Maurakh said. "We try to teach them to keep a cool head and distinguish their interpretation of facts from the actual facts themselves. This is very important in crisis situations."

The company offers both one-on-one seminars and corporate seminars costing 300,000 rubles ($11,000) for 30 people.

Maurakh said larger corporations that have recently come under financial pressure like Troika Dialog and Mirax Group have canceled their contracts with Business Relations, but "smaller, more mobile companies have actually been looking for ways to boost their productivity."

Mirax Group said in e-mailed comments Monday that it had not been working with Business Relations since the summer of 2007 and that there was no connection to "the recent situation."

Troika Dialog said Maurakh's comments were "not true," without providing further details.

Others are turning to the Internet for answers.

"There has been a surge of user interest in financial web sites," said Dina Litvinova, the PR manager for Yandex.ru, the country's largest Internet search engine. "From the end of September through the end of October, the number of unique visitors in the 'Finance' category has increased by 86 percent. Last year, we didn't see a comparable increase at all."

One such finance web site, Testcrisis.ru, asks visitors a series of questions — such as whether they keep their savings in rubles or dollars or whether they own real estate — to determine how affected they will be by the crisis.

And even as people remain uncertain about what the downturn will bring, customers seem to be digging for cheaper alternatives wherever they can find them.

"We've seen a 15 percent bump in profits recently," said Mikhail Kudryavtsev, director of marketing for Kroshka Kartoshka, whose baked-potato stands are a fixture on Moscow streets, in an interview with Komsomolskaya Pravda last week.

"And we expect even more demand," he said. "A friend of mine just came back from the United States. She said that hot dog stands are getting lines that stretch around an entire block."