Foreign Banks’ Hunt for Ural Millionaires

09.10.2009 — Analysis

Foreign banks start capturing Ural millionaires. Western financiers are confident that Russia will be among the first countries to recover after the economic crisis and that is why the "hunt" for oligarchs should start now or it will be too late after the situation stabilizes: competition will increase manyfold. RusBusinessNews correspondent has looked into what financial institutions offer to lure the Russian oligarchs.

Despite the crisis that rages in the country, foreigners find the financial market of Russia and the Urals attractive. In October 2009 representatives of the two world largest financial organizations - Deutsche Bank and Royal Bank of Canada - came to Ekaterinburg to "test the waters".

Dr. Andreas Frueh, Head of Investment Management, Deutsche Bank Zurich, thinks that only China and Japan will be able to overcome the crisis faster than Russia. "Russia is a very promising country today, a leading exporter of oil which exports about 10 billion ton of ‘black gold' a year to the world. The demand for oil went down during the crisis and as a consequence the prices decreased; in the near feature, however, both the demand and the prices will start growing", the expert believes. In his opinion the price of "black gold" will soon be close to 75 US dollars per barrel again. Besides, analysts say that one of the advantages Russia has is a small - as compared to the European states - foreign debt of 487.4 billion US dollars. 

Such optimistic predictions make the Russian Federation even more attractive for European bankers. "Banking market in Russia is still developing. European financial organizations are conservative and for this reason there is no particularly strong competition to enter the "large" market of the country. But I think that right after the global situation improves, the competition will become more intense", said Michael Eshkol, a representative of Deutsche Bank OOO - a Deutsche Bank subsidiary in Russia. 

In his opinion the Ural region will be a particularly sweet spot as it hosts vital industries: metallurgy, machine building, oil production and etc. A dozen large enterprises have already voiced their interest to cooperate, among them are "Spetzavtotekhnika" Fire Equipment Plant LLC, Kamensk-Uralsky Metallurgical Works OJSC, FGUP "NPO Avtomatiki", Metallist OJSC and Shchitmontazh Plant OJSC.

Bankers' goals are quite ambitious: to capture the largest and the richest "individual" clients of Russia and the Urals. 5 million Euro is the minimum amount one must deposit to become a client of Deutsche Bank, for example. ‘We are not a vacuum cleaner to suck up rubbish. Why waste our efforts on trifles, since it is not a heap of small clients but several large and profitable ones we are after", Michael Eshkol stressed.  

In return the Germans can offer oligarchs the services unavailable in Russian banks who work predominantly with the middle class customers. Each Deutsche Bank client is assigned a personal account manager, a financial consultant, an assistant, and an investment manager who work out several options to allocate client's funds. A depositor can choose how to manage his or her money; it can be invested into several projects simultaneously - money can be allocated to securities, shares, and bonds.

Deutsche Bank is ready to purchase any real estate in any part of the world on behalf of its client; moreover, the Russians will not have to do the bargaining part. Most foreigners think that Russian people throw their money away, so the price for whatever product they buy is marked up by an order of magnitude. The bank, however, takes the responsibility to beat down the price. Besides, Russian billionaires are offered a profitable type of investment which is rarely used in Russia: to invest their money into valuable works of art and antiques. It is worth mentioning that Deutsche Bank offers its client an opportunity to open an account not only in the Russian branch of the bank but in other subsidiaries in Zurich, Vienna, Luxemburg, and, of course, Berlin, where the headquarters of the bank are situated.

Royal Bank of Canada, which has little presence in Russia so far, is planning to expand its product line in the near future. Company's priority is family and personal trusts. In foreign countries this tool is considered to be one of the most efficient frameworks of asset inheritance, whereas in Russia it only begins to develop. The essence of the trust is that a citizen or his family can give their assets to a trustee which can be both a bank or an investment company. A financial organization invests the funds into efficient tools and a depositor and his family earn profit. Thus "working" assets can be inherited by next generations. A trustee, in his turn, earns his interest on profit gained.

The "hunt" for oligarchs can bring good profit to foreign bankers. As the World Wealth Report 2009 from Capgemini and Merrill Lynch states, the number of dollar millionaires in Russian is nearing 97,100. In 2008 there were 49 dollar billionaires in the country, whilst the 2009 data is not available yet. There are plenty of wealthy citizens in the Urals as well. According to the Federal Revenue Service, there were 18 "rouble" billionaires and about 9,000 millionaires in 2008 in the Sverdlovsk Oblast alone.

However, the Urals analysts are sceptical about local "fat cats" lining up for foreign banks' services. Dmitry Zemerov, Deputy Director General of Unicom Partner IFC, believes that foreign financial institutions will undoubtedly get new clients; however, this niche will be a small one. "Most Russian millionaires do not entrust the purchase of shares and bonds to financial institutions, they do it themselves. The same goes for real estate, and antiques are usually bought at the auctions abroad", mentions the expert.

On the other hand it is a really good time for the foreigners to come to the Russian banking market: domestic banking system has considerably weakened during the crisis. After the situation stabilizes the foreign companies will have more difficulties as many large clients will go to strengthened "home" banks.

According to the information from the Deposit Insurance Agency, there are 53 credit institutions working in the Urals Federal District today, and the inflow of deposits is growing continuously. The largest growth was registered in the segment of 400 to 700 thousand rouble deposits in the first half of 2009, their share increased from 13 to 15%. The Tyumen Oblast residents contributed the largest amounts of money.

Maria Truskova