Return of the White Russians
Ben Aris in Moscow - BusinessNewEurope - bne.eu - 4.4.12 - JRL 2012-62

Alexis Rodzianko, CEO of second-tier investment bank Metropol, is surprisingly sanguine about the rollercoaster ride that is working in Russian finance, but then he has a longer-term perspective than most.

file photoA US passport holder, he is also the grandson of Mikhail Rodzianko, who was a founding member of the Octobrist party set up in October 1905 during Russia's first experiment with democracy. Unlike the other main political parties, the Octobrist were firmly committed to a constitutional monarchy, but emphasised a stronger parliament that played a more active role in running the country. Mikhail went on to become the chairman of the Fourth State Duma until its dissolution in February 1917 shortly before the Bolshevik Revolution. Even after Lenin took control, Mikhail strived for compromise, presiding over the Communists' provisional government and leading the talks on the abdication of the Tsar.

However, he fled Russia in the 1920s with his family and died in Serbia in abject poverty four years later. His children, including Alexis' father, ended up as White Russians fighting against Stalin, finally ending up in the American occupation zone in Munich at the end of World War II. It was from here that Alexis' parents eventually emigrated to the US, where he was born.

Fast forward to today and Metropol is one of a slew of second-tier banks that are operating in the shadows of their bigger brethren. With Sberbank's take over of Troika Dialog and the inexorable rise of VTB Capital, Russia's state-owned banks pretty much dominate the investment banking scene in Russia. Renaissance Capital remains the only large privately owned bank left, but its owner Stephen Jennings has been remodelling the bank with a stronger focus on other emerging markets, and Africa in particular, leaving a hole in the Russian market for smaller banks to cater to the investment banking needs of Russia's small and medium-sized enterprises.

While no one would claim that Russia is booming, the economy is recovering well, and now that the political uncertainty of the elections is over, Rodzianko says he is looking forward to a pick-up in business. Just how fast things do depends heavily on how far Putin fulfils his reform promises that will affect the SMEs most. "We have several deals in the works that would be good for our bottom line if they come off," says Rodzianko. "The deals are not done yet, but the difference from a year ago is that now there are two sides to the discussions buyers and sellers."

These smaller banks are going to have to rely on SMEs for their daily bread going forward. Pre-crisis it was easy for anyone to make money; the equity, bond and corporate banking businesses were all booming. But post-crisis most of this action has withered, though low inflation and low yields in the rest of the world has led to a slew of bond issues, which makes up a big chunk of Metropol's income. "We are a niche player, but there are plenty of firms that don't want to do business with the government-owned banks and completely open their books to the state," says Rodzianko. "However, with our brokerage things have been more difficult. We have been forced to take on more risky positions than we would have preferred, as margins and volumes have both f