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. Last Updated: 07/27/2016

Talent Competition Hits MDM Ranks

Oleg Vyugin might have felt like he was on top of the world after being named chairman of MDM Bank last month. On Thursday, the top must have seemed pretty lonely.

MDM head of equities Vladimir Bril and chief strategist Alex Kantarovich jumped ship that day, in what analysts say is a symptom of increasing competition for financial talent in the Russian banking sector.

"The Russian investment market, which is valued at $1.3 trillion, is growing exponentially, while its infrastructure is lagging behind," said Chris Weafer, chief strategist at Alfa Bank. "There are simply not enough people to go around."

Bril and Kantarovich, who took members of their research teams with them, left amid broad media speculation that they were headed to JP Morgan and taking members of their teams with them.

The two declined to reveal their future plans on Friday, citing ethical considerations. JP Morgan also refused to comment on the reports, saying that to do so would violate corporate policy.

One former employee of the bank, speaking on condition of anonymity, said a number of those who left had received multiple offers and it would be "highly inaccurate" to say they were headed for JP Morgan.

Even how many people had left remained a bit of a mystery over the weekend. Vedomosti reported Friday that 10 other senior analysts had departed along with Bril and Kantarovich.

Three other analysts contacted over the weekend and speaking on condition of anonymity, confirmed that they had also left MDM, but they refused to provide a total number for the defections, citing an agreement with their colleagues.

Clearly, however, there had been a thinning of the ranks by Thursday morning.

"It was pretty empty," one source said. "There was a bit of confusion."

Igor Smolkin, head of investment banking at MDM, described the decision by employees to leave at this time of year as "logical," since the bank had recently paid out yearly bonuses, Vedomosti reported.

MDM is owned by billionaire Sergei Popov, 35, who holds a 90 percent stake after buying out his chief partner, Andrei Melnichenko, in December.

The bank is rated among the country's top 15 by assets, and had enjoyed a strong position in both the retail and investment banking sectors.

When Vyugin, the former head of Russia's securities watchdog, signed on as chairman in May, it was expected to provide a boost to MDM's investment-banking arm.

Last week's departures, however, demonstrated just how difficult the competition in this sector is becoming.

"Local banks like MDM Bank face a dilemma," Alfa's Weafer said. "They can either increase their cost base and replace those who left, or shrink to a more modest role as retail bankers."

Bril and Kantarovich, who had worked together at ABN Amro in Moscow before joining MDM, are only the latest in a wave of defections that has plagued the country's booming investment banking sector.

No fewer than 40 top managers have joined rival banks in Russia in recent months, banking analysts said. Igor Lojevsky and Nick Jordan, who were focusing on Russia for Deutsche Bank out of London, were two of the highest-profile cases.

Lojevsky moved from Deutsche Bank in March to take over as chairman of global banking at Capital Dresdner Kleinwort in Moscow. His departure came on the heels of the recruitment of Jordan, Deutsche Bank's co-head of Russian investment banking in London, by Lehman Brothers to spearhead its new thrust into the Moscow market.

Deutsche Bank was also stung in March by the loss of co-head of research Stephen O'Sullivan, who left for Macquarie Bank's Asian team.

Charles Ryan, chief country officer and CEO of Deutsche Bank Group in Russia, said at the time that he was unfazed by the defections.

He did, however, criticize the recent increase in movement among banks as harmful in a sector where building careers within a particular bank is important. "What you end up with is something like a French farce -- you've got a guy that goes from Deutsche Bank to Morgan Stanley, from Morgan Stanley to somewhere like Goldman Sachs, and from there to Lehman," Ryan said. "How can somebody have four jobs in 18 months and have a career?"

The present trend seems as much a function of the country's newfound wealth, however, and specialists changing jobs in a highly competitive market is not unusual.

"When people leave a bank, they tend to leave with a team," said Richard Hainsworth, a banking analyst at RusRating. "I would not exclude that [the MDM departures] have to do with bonus payments."

Hawk Sunshine, head of equities at Metropol brokerage, said the team that MDM had assembled to build a stronger investment arm represented a move away from its traditional focus on retail and commercial banking.

The group had failed to generate substantial profits, however, which was likely part of the reason for the decision for many to leave.

"It was like buying a bunch of bricks, but no mortar to hold it all together," Sunshine said.

He said that the desire on the part of Western institutions to move more solidly into the investment banking sector, coupled with a paucity of local talent within their ranks, was behind the poaching from Russian banks.

"These [Western banks] are all very uncreative, bureaucratic places to work. For people who are real profit generators, it's a real dead end for them," Sunshine said. "This shows how aggressively Western banks are at going after qualified people."

Staff Writer Miriam Elder contributed to this report.