WESTERN investment houses are finding it increasingly difficult to compete with Russian banks for leading investment bankers after a steady stream of senior financiers abandoned firms such as Dresdner and Merrill Lynch recently to work for Russian banks, lured by multimillion-dollar bonuses.
This week Merrill Lynch lost Mike Eggleton, the head of its Russia office, to the Russian brokerage Trust Investment Bank, marking the second Russia chief that Merrill has lost in six months. His predecessor, Allen Vine, left Merrill in March to head Nafta Moskva, an investment firm owned by the oligarch Suleiman Kerimov. Merrill declined to comment.
Dresdner Bank is also losing senior management to local firms. Matthias Warnig, the chairman of its Moscow office, left in December to become chief executive of the Gazprom- led consortium building the North European pipeline. Bob Foresman, the head of investment banking, also left in July, to become deputy chief of the local brokerage Renaissance Capital. Dresdner declined to comment.
A source said: “Renaissance made Foresman an offer he couldn’t turn down, and one Dresdner couldn’t compete with. He’s going to be able to retire early.” Dresdner, whose profits were down last year, has cut bonuses worldwide.
Renaissance, set up by two CSFB bankers in the early 1990s, is known for its bonuses. It lured one M&A banker, Chris Baxter, to work for it from Merrill Lynch, reportedly for a guaranteed bonus of $6 million a year. Renaissance declined to comment on his compensation package. Even relatively junior bankers can hope for bonuses of up to $800,000 (£420,000), Moscow bankers say.
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Hans Jochum Horn, the chief operating officer of Renaissance Capital, said: “We’re very market-orientated. If we want to win top talent, we’re willing to pay what the market demands. Western firms are often constricted by it being difficult for them to go over fixed bonus brackets of, say, $1 million or $2 million, without seeking approval right at the top of the bank. We don’t have that problem.” Mr Horn was lured from Ernst & Young, where he had been managing partner for Russia, last September.
Russian capital markets have performed very strongly over the past 18 months. Last year, the main share index was up 80 per cent, making it one of the world’s top performers. Local banks are making record profits on investment banking activities and this has given them the cash to spend big on hiring Western bankers to improve their international credibility.
Many Western banks are feeling the heat. One Moscow banker said: “Citigroup is complaining that it is leaking staff to local firms, because the Moscow pay scale is right off the end of the global pay scale and Russian firms are offering crazy packages.”
Elena Birenberg, a consultant at the Moscow headhunter Pynes & Moerner, said: “We’ve seen a trend of people leaving the more conservative investment banks, such as Dresdner, BNP Paribas, Credit Suisse, Citigroup and ABN Amro, and joining local banks.
“The problem with Western banks is that, while they sometimes have generous fixed compensation, the bonus system is rather stable. It doesn’t matter if you had a great or a bad year, the bonus is similar. Local banks, like Renaissance Capital, MDM Bank or Troika Dialog, are known for paying generous bonuses, or a percentage of the commission that you generate, so you can participate much more in the profit you are generating.” Russian firms are also more flexible in supporting bankers with perks such as school fees and apartment rents, analysts say.
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Russian companies are also hiring Western investment bankers to help them work towards initial public offerings.
But losing bankers to major companies can have an upside for Western banks. Elena Birenberg said: “It can be useful to have a man on the inside.”