Overview of Investment Banking in Russia
Have you ever heard about investment banking in Russia? How is the market? Can anybody get a job there as an investment banker? How is the culture? What types of deals are more prevalent? And how much compensation you can expect? What’s the recruitment process like?
In this article, we will try to answer all of the above questions. Let’s have a look at the sequence of the article.
In this article, we will talk about the following –
- Investment Banking Market in Russia
- Services Offered by Investment Banks in Russia
- Top Investment Banks in Russia
- Recruitment Process
- Exit Opportunities
- In the final analysis
If you are new to Investment Banking, do have a look at nuts and bolts of Investment Banking here.
Investment Banking Market in Russia
Most of the bankers have rarely heard about investment banking in Russia. But it exists and you need to really fight to get a good position in a bulge bracket bank in Russia.
Before 1990, there was no investment banking in Russia. It all began after 1990 when Gazprom went public. The year was 1996 when investment banking industry in Russia found its first route.
Prior to the 1996, the mentality in Russia was completely different. If anyone would need to M&A advice, they wouldn’t have gone to investment bankers. Rather, they would go to a commercial bank, talk to them, and get a loan. As a result, investment banking in Russia didn’t grow at all.
The investment banking industry has started in Russia, but still, M&A deals are very less. In a given year, if you ask an investment banker in Russia about what types of deals he has been handling, he would say – equity capital market deals such as IPOs. Investment bankers rarely handle M&A deals.
In a given year, if we look at the Russian investment banking market, we will see that 70%-80% of the deals would be of capital market and the rest of the deals will come from M&A advisory.
But why there are so lesser deals in M&A advisory? The reason is a lot of M&A deals are controlled by the state or oligarchs. Oligarchs are the people who are very rich and have some sort of political influence. As a result, it’s pretty difficult to negotiate with them. Thus, companies don’t intend to do M&A deals since they have been controlled by political pressure and not by institutional and individual investors.
On the other hand, if we look at equity capital deals, we would see that there are many private companies who like to become public. And as a result, the investment banks get a lot of opportunities to close these deals. However, politics affect the deals a lot. And the capital markets are often closed in Russia.
So, in a nutshell, investment banking in Russia is on the verge of growing. But politics has a drastic effect on the growth of the market. We can hope that as the economy grows, investment banking in Russia would gradually grow toward a better future.
Services Offered by Investment Banks in Russia
As you have seen that investment banking in Russia has been struggling to keep its feet stronger, there are few banks that have been doing well. We will try to understand their focus and service orientation below.
First, we will look at the services offered by these investment banks in Russia –
As already mentioned, the investment banks in Russia have been closing most of the deals in capital market. They offer services in capital market quite extensively and they have world class teams to back them up. Here are few of the top-notch services they offer –
- Precious metal trading: These banks buy precious metals (gold, silver, platinum etc.) on behalf of its clients and offer financing, precious metal trading, unallocated metal accounts for corporations.
- Brokerage services: Investment banks in Russia also offer brokerage services. They offer MICEX where they help clients with corporate bonds and shares, sovereign bonds, and Russian depositary receipts. In RTS (FORTS), they assist clients in futures and options on bonds and shares issued by top-notch Russian companies. And they also offer services in OTC market.
- IPO and underwriting: Investment banks in Russia offer Initial Public Offerings (IPOs) and Secondary Primary Offers (PMOs) and they are highly skilled in these areas. Top most investment banks in Russia help companies get full support during the whole transaction; and also place them among the vast foreign investors base and list them on international and Russian stock market exchanges.
Investment banks in Russia also offer a wide range of services in debt financing. They offer the following services under debt financing –
- Issuance of LPN Eurobonds/CLN
- Issuance of ruble stock bonds
- Issuance of ruble corporate bonds
- Issuance of ruble bank bonds &
- Issuance of ruble bonds for Russian constituencies and municipalities.
Also, check out Equity Financing vs Debt Financing
Corporate Finance (M&A Advisory)
Top-notch investment banks offer M&A advisory services even if Russia is not very popular for M&A deals. They help clients build strategy and structure of M&A deals. They also assist clients in lead management, investors’ search, financing by private placements, mergers & equity stake swaps, and advisory services.
Now, we will talk about the service orientation of these investment banks in Russia.
- These top-notch banks are most adored investment banks in Russia. They have years of experience (around 20+ years) to serve their clients in Russia and in the international market.
- These banks also have great networks and their clients can get access to a great pool of international investors because of the banks’ connections.
- If any client wants to test the supremacy of these banks, they can go through a series of large-scale investment deals the banks have executed to be sure of a superior service.
- These banks usually hire the best people so that they can build the greatest teams. Investment banking is not for the faint-hearted and the teams are extraordinary by all means.
Top Investment Banks in Russia
Yes, Russia isn’t a perfect place for investment bankers. But there are few top investment banks that have made their present felt.
Let’s have a look at them one by one –
- Alfa Bank
- Aton Capital
- Bank of Moscow
- BNP Paribas SA
- Citigroup Inc.
- Credit Suisse Group AG
- Gazprom bank
- Morgan Stanley
- Renaissance Capital
- Royal Bank of Scotland PLC
- Troika Dialog
- UBS AG
- VTB Capital
The recruitment process in Investment banking in Russia is not much different. But of course, there are few unique things in the process which we should know. Let’s have a look at the recruitment process of investment banking in Russia –
- Networking: As you already know without networking, it would be impossible to make one’s mark. In Russia, the recruitment process is mostly random; that’s why you need to do an extraordinary amount of networking. Only cold calling or cold emailing will not hit the nib; you need to attend the events sponsored by business clubs, talk to as many head-hunters as you can and then look for internships as many as you can.
- Internships: Here at Russia, the meaning of internships is different. You can’t just get anything in 6 to 12 weeks of internships. You need to be ready for internships of at least 6 months to a year. Imagine being in investment banking as an intern, doing the job of an investment banker, receiving chicken feeds and working 100 hours a week for a year. This is not easy for most people. But few people are ready to pay the price to get into investment banking. As the team is much smaller than the other parts of the world, barriers to entry are much more than usual. Also, have a look at How to get An Investment Banking Internship
- Planning to enter into investment banking: You need to carefully plan to enter into Russian investment banking market. Here’s why. The competition is very tough and there are a lot of people aiming for a single position since the team is always very smaller. So you should know that you would be entering into investment banking when you are in your graduation. And when you’re in graduation, you need to roll up your sleeves and start searching for internships. Your target would be at least 2-3 internships before you become a graduate. Internships can be of any nature – in commercial banking, or in investment banks directly, or in antitrust regulator where M&A deals are being approved.
- Interviews: If you follow the above steps, you may be ready for interviews. To be eligible for the interviews for a full time job, you need to have the relevant qualifications and you should really know few big shots in the industry. The interview questions are same and you need to go through the online application, assessment centers, numerical questions, and case study analysis. In technical interviews, you will be asked questions like DCF valuation, various valuation methodologies, how you can link 3 financial statements, how to calculate beta etc. Investment banks in Russia only hire 3-4 people a year, often less than that. That’s why the only way to stand out is to pursue additional qualification like CFA, network extensively, and be always ready for internships prior to getting a full-time job.
- Entry-point as a foreigner and language: As a foreigner, it’s almost impossible to get a job in investment banking in Russia. Back in 1990, things were different. Russian investment banks at that time needed to hire people from foreign countries as Russian people were not having required qualifications for investment banking. Over time things have changed. Only Russian people get hired here. The only foreigners who work in investment banks in Russia are at MD level. That means without knowing the native language, you have no chance.
In a nutshell, it’s not easy to get into investment banking in Russia. You need to do a lot of work before you ever can see the light of the day.
Culture in Investment Banks in Russia
Even if the Russian investment banking market is an emerging one, the work pressure is huge. As a first-year analyst, you need to work on 80-100 hours a week every week. And you would be expected to perform since the team is very small and only 10-15 people support an entire region. But in the summertime, the working hours become a little less stringent. Because during August, people take vacations and go on holidays. The pressure of work becomes less. That’s why during summertime, investment bankers work around 60 hours a week.
As an analyst, you need to attend a lot of external and internal conference calls all through the day because it’s important for the bankers to discuss every move with their clients. And all the calls should end before 6 p.m. because no employee at any corporation sits in their organization beyond that time.
The work is usually split among three key areas – administrative work (20%), Excel and modeling (30%), and power-point (50%).
The best thing about working in Russian investment banking is its compensation. It’s as good as New York or London. So, now it makes sense why people work so hard to get into investment banking.
Let’s have a look at the average salary of investment bankers and analysts –
In Investment Banking in Russia, along with getting a higher salary, you would be able to save a lot more, because the income tax rate is just 13%. That means, after paying the income tax, the rest 87% is yours which is a lot if you compare with the New York or London.
And you will also earn a great bonus. As an associate, you will earn almost 1.5 times bonus of your salary in your first year. And the salary and bonus are all performance oriented.
But in boutique banks, the basic compensation and the bonus is much lesser.
Rarely people leave investment banking in Russia for other options. The reason is high entry barrier in investment banking. People work so hard to get into investment banking and without working for a long time; most don’t look for other opportunities.
However, if you’re looking to explore new opportunities and not very much interested in investment banking, your only option can be corporate development. Private equity is in its infancy here – there are just 10 firms hiring people. And even hedge funds are also not very prevalent.
Also, have a look at Investment Banking Exit Opportunities
In the final analysis
Investment banking in Russia is not a great market to try your hands on. If you’re from Russia, then you have a chance to try your luck. Or else, you need to have years of experience in investment banking to make your mark.
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This has been a guide to Investment Banking in Russia, market overview, services offered, top investment banks in Russia, culture, salaries offered and exit opportunities. You may also have alook at these articles below to learn more about Investment banks
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