Russian Revival?

Troika Dialog CEO Ruben Vardanian sells a stake to Standard Bank of South Africa.


Fresh signs of life emerged from Russia’s battered investment banking sector last month when the Standard Bank of South Africa announced it would pay $200 million for a 33 percent stake in Moscow-based Troika Dialog. One of Russia’s oldest and largest investment banks, Troika brokers 46 percent of the transactions on Moscow’s dollar-denominated stock market, the Russian Trading System, and boasts $6.2 billion in assets under management, down from $9.4 billion last October.

The $600 million valuation is a fraction of what Troika’s chief executive and majority owner, Ruben Vardanian, reportedly turned down two years ago from international suitors led by JPMorgan Chase & Co. and Credit Suisse. “I think everyone is keenly aware that the price is much diminished from what Troika could have gotten earlier,” says one Moscow-based asset manager, who spoke on condition of anonymity. “But it’s a good fit for them and a good story for Russia.”

Net worth of any sort is impressive these days, considering that the Moscow stock market has fallen by two thirds in the past year and underwriting business is moribund. “Talks regarding a potential partnership with Standard Bank started before the crisis,” Vardanian told II in an e-mail. “We are delighted that they affirmed their confidence in these more challenging times.” Troika follows its local rival Renaissance Capital in finding a partner with deep pockets. Russian metals and banking billionaire Mikhail Prokhorov bought 50 percent of RenCap for $500 million in September.

Russia’s troubles spell opportunity for Johannesburg-based Standard, which is using its relatively flush balance sheet to build a global franchise in commodities-intensive emerging markets. “It’s impossible to call the date when the market will turn around, but Russia has been a core country for us for a long time,” notes David Duffy, chief executive of the bank’s London arm. Standard will combine its small Russian commercial banking subsidiary with Troika, which Vardanian and U.S.-born banker Bernard Sucher founded in the early 1990s, to create an entity with a presence ranging “from investment banking all the way through to retail,” says Duffy.

Standard’s investors appear to endorse its Russian gambit. “Now that valuations have come down so aggressively, it makes sense for them to buy fully fledged investment businesses in key markets like Russia,” explains Patrice Rassou, a portfolio manager at South Africa’s Sanlam Investment Management, which owns some 2 percent of Standard’s shares. The bank’s share price has jumped 29 percent since it announced the Troika investment March 6, though Rassou mainly credits positive earnings results and a global rally in financial stocks. The South African bank can easily afford the deal. Standard has largely steered clear of the toxic mortgage-backed securities that have humbled other big lenders, and it retains plenty of firepower after selling a 20 percent stake to Industrial and Commercial Bank of China in 2007 for $5.6 billion. Even after the Russian deal and other recent acquisitions, Standard has $1 billion for further shopping, estimates Rassou.

It follows rivals such as Deutsche Bank and UBS, which bought stakes in Moscow investment houses beginning in the late 1990s and now own them outright. Vardanian contends that this alliance will be different. “Troika’s stance throughout negotiations was to retain control over the company’s property and decision making.”

Whether he can hold on to that control remains to be seen.