Deutsche Bank confirms its retreat from Russia

Kremlin and Saint Basil's File Photo

(Business New Europe – bne.eu – Jason Corcoran in Moscow – September 18, 2015)

Deutsche Bank, a lender whose ties with Russia span 134 years, will exit its investment banking business in Moscow by the end of year following allegations its bankers laundered money on behalf of its clients, it was confirmed on September 18.

The German bank’s corporate finance and markets business will relocate to international hubs, expectedly in London and Frankfurt.

The decision was taken “in order to reduce complexity, costs, risks, and capital consumption,” according to a statement published on the bank’s website. The statement was sent to the website briefly on September 17 before being removed and then posted again the following day.

bne IntelliNews reported earlier that a trading scandal may force the bank to cut the lion’s share of its 1,300 workforce in Russia. The Frankfurt-based lender on September 18 confirmed it would exit its investment banking and custody businesses but didn’t shed any light on its huge IT centre. The statement said Deutsche will carry on serving wealth management clients but will “consolidate administration and booking offshore.”

The bank, which had been the biggest and most profitable investment bank in Moscow over the past two decades, said it will continue to offer prices in Russian securities to clients but using third parties for local execution.

In a first Russian reaction to the development, the central bank’s first deputy chairman Sergei Shvetsov said the Deutsche Bank withdrawal will not damage Russia’s investment climate.

“It will have no effect as the volume of business is defined not by the number of intermediate parties but by the number of investors,” TASS quoted Shvetsov as saying on the sidelines of the Finnopolis 2015 conference in Kazan.

Mirror trade bombshell

Tim Wiswell, a senior employee until August, is at the centre of a probe into possible money laundering involving about $6bn of transactions over more than four years. Wiswell is believed to have left Russia and is currently in retreat at his US home in Connecticut.

Regulators and the bank itself are examining so-called “mirror-trades” whereby Russian clients might have bought stocks in rubles via Deutsche Bank, and simultaneously made trades through London in which the bank purchased the same stocks at similar amounts in US dollars. Such transactions could have enabled Russians to move money offshore without telling the authorities.

Deutsche Bank’s new co-CEO John Cryan said in a July memo that the bank “has been damaged by instances of serious misconduct”.

End of meteoric rise in Russia

The bank set up its Moscow business in April 1998 just four months before Russia defaulted on its debt. Five years later, the lender bought 40% of a local broker UFG for $70mn rather than try to continue growing organically. They bought the remaining 60% from US banker Charlie Ryan and former Yeltsin minister Boris Fedorov in 2006 for $600mn.

The two-step deal gave Deutsche Bank the platform it coveted and within a year it established an unassailable lead in domestic equity and debt capital market league tables. The bank lost ground in 2008 after the Russian state-controlled VTB bank raided over 100 bankers to set up their own investment banking start-up. A combination of sanctions, falling commodity prices a deepending recession and this trading scandal has now forced the Germans to retreat.