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. Last Updated: 07/27/2016

Sberbank Gives Investors Conservative Reward

VedomostiSberbank employees pitching its shares to investors in February 2007. The stock has since fallen by 25 percent.
Sberbank, the country's largest lender, will stick to a conservative dividend policy after 29 percent growth in profits at the state-owned bank from 2006 to 2007, CEO German Gref said following a shareholders meeting Friday.

The bank will pay 10 percent of its 2007 net profits of 106.5 billion rubles ($4.6 billion) to shareholders, many of whom are angry over the 25 percent fall in the value of its shares since a secondary offering last year that raised $9 billion.

The shareholders voted for a new charter significantly increasing Gref's authority in running and representing the bank, including the ability to sign contracts in Russia and abroad without receiving power of attorney, authority that Sberbank said would "enable the bank to make operational decisions in times of world financial crisis."

Indeed, Sberbank has blamed the fall in its share value, and the subsequent move by some minority shareholders to sell off part of their stakes, on the global financial crisis, but some shareholders still believe that mismanagement has been a key factor.

"We expected more from the state-run bank with such a high-level reputation," said one shareholder, who spoke on condition of anonymity but said he had initially bought 1.5 million rubles worth of shares. "I think the problem is poor management -- and not in the financial crisis, which doesn't have a clear direct connection to Russia's economy."

The Sberbank shares went on sale for 89,000 rubles in February and March 2007 and were then split 1,000-for-1 in July. The share price closed at 76 rubles on Friday on both MICEX and the RTS.

The shareholder said he planned to hold on to the stocks, however, as he "still hoped to make a profit in the long term."

Sberbank has at least managed to outperform state-owned competitor VTB, which has seen its stock fall 40 percent since its IPO in May 2007.

Little concern was voiced by shareholders during the actual meeting Friday, where, of about 242,000 shareholders, only about 500 were present, many of whom have held their shares in the bank since the 1990s.

Gref, the former economic development and trade minister, was appointed to head the bank in November and tasked with turning the bureaucratic state structure into an efficient market player. He confirmed on Friday that major minority shareholders had been reducing their holdings of Sberbank stock in recent months.

"Before, the largest minority stake was about 6 percent," Gref said. "Now the largest holding is about 2 percent."

Russian billionaire Suleiman Kerimov had owned about 6 percent of Sberbank but sold his shares recently. Other major shareholders included Yelena Baturina, who is the wife of Mayor Yury Luzhkov, and cement tycoon Filaret Galchev, Reuters reported.

Gref said Friday that the bank should create a special body to explain new policy to minority shareholders and solicit their opinions on bank strategy.

"We are now working on the bank's new, aggressive 5-year strategy, including expansion in the CIS, Eastern Europe and Asia, which will be followed by Africa and South America," Gref said.

He also said the bank would borrow "from $3 billion to $5 billion this year to support its business in Russia and expand abroad."

"We want to increase our share of the mortgage market and make our programs more accessible for young families," Gref said. "We want to double our client base among small businesses."

Sberbank fell 10 places over the last year in a survey of retail banks published last week by PricewaterhouseCoopers and Senteo focusing on parameters like quality of service and range of products available. The bank finished 24th out of 51 banks in St. Petersburg and Moscow.

"We can't boast about the quality of service, but we will do all our best to perfect that," Gref said, commenting on the results. "We want to be the favorite bank of our clients; we want to make them our fans."

At least one analyst was skeptical about the chances of success.

"While the share prices are falling because of the world economic crisis, Sberbank's current management seems to be involved more in PR that in concrete activities," said Rustam Botashev, an equity research analyst with UniCredit Aton.

"In laying out such ambitious plans, Gref seems to be overly optimistic," Botashev said. "It will be hard to change a huge, bureaucratic machine like Sberbank any time soon."

In particular, he said fixing things at home made more sense than focusing on new business abroad.

"Aggressive international expansion seems illogical while the bank has so much to work out on the domestic market," Botashev said.