RUSSIA'S SBERBANK TAPS GERMAN GREF AS NEXT CEO

UNCLAS MOSCOW 005043 SIPDIS SENSITIVE SIPDIS STATE FOR EUR/RUS, EEB/IFD TREASURY FOR TORGERSON NSC FOR MCKIBBEN E.O. 12958: N/A TAGS: EFIN ECON RS SUBJECT: RUSSIA'S SBERBANK TAPS GERMAN GREF AS NEXT CEO -------------- Summary -------------- ¶1. (SBU) On October 16, the supervisory council of state-controlled Sberbank nominated former Economic Development and Trade Minister German Gref to be the bank's next CEO. Shareholders will formally consider Gref's nomination November 28. The nomination was not unanimous. Outgoing CEO Andrey Kazmin and First Deputy CEO Alla Aleshkina both voted against Gref and sold their shares in the bank. News of Gref's nomination has, on balance, received negative reviews in the press. Banking sector observers are more mixed. Critics question his banking experience and call his time at the Ministry of Economic Development and Trade (MEDT) a "do-nothing" tenure. However, other analysts hail his reform-minded credentials and see potential. End Summary. -------------- Kazmin Out -------------- ¶2. (SBU) After 11 years as the CEO of state-controlled Sberbank, Andrey Kazmin will step down to become the next Director General of the Russian Postal System. President Putin selected Kazmin with the dual goal of modernizing the country's postal services and expanding the reach of financial services into areas with no banking presence. ¶3. (SBU) Kazmin is widely credited with improving Sberbank's financial standing and quality of services, according to Trust Bank Chief Economist Sergey Nadorshin. Renaissance Capital's Fixed Income Director Aleksey Moiseev notes that "Kazmin succeeded in building a fully functional institution that will continue to earn healthy profits after his departure." The bank now boasts more than 33 percent of retail lending and 54 percent of retail deposits, according to Alfa Bank Chief Economist Natalya Orlova. -------------- Gref In -------------- ¶4. (SBU) Rumors that former Economic Development and Trade Minister German Gref would succeed Kazmin as Sberbank's CEO began circulating in the media on October 4. Reports of Gref's possible leadership of Sberbank at that time coincided with a drop in the bank's share price, which some analysts, like Standard & Poor's Financial Institutions Deputy Director Elena Romanova, said may have indicated a lack of trust in Gref. ¶5. (SBU) The bank's supervisory council formally nominated Gref at a meeting on October 16. Not all council members supported the decision. Kazmin and his First Deputy CEO Alla Aleshkina voted against Gref, and both have subsequently sold their equity holdings in the bank. Nevertheless, the measure passed, and shareholders are expected to endorse Gref's candidacy during an extraordinary general meeting on November ¶28. (Note: The Central Bank, which introduced the Gref nomination to the supervisory council, is Sberbank's largest shareholder. End Note.) -------------- Banking Sector's Views -------------- ¶6. (SBU) Echoing the largely negative sentiment in business press reports on Gref's nomination, UralSib Bank's First Deputy CEO Vladimir Ryskin told us that Gref accomplished few concrete results at MEDT. Ryskin dismissed the notion that Gref would succeed in reducing the state's share of Sberbank, speculating that "state-controlled banks would continue to dominate the sector in 10 years." Ryskin also expressed doubt that Gref would be able to reverse an emerging trend in which state-controlled banks "crowd out" private banks from large-scale infrastructure, project finance, and trade facilitation deals. Ryskin explained that, despite the banking sector's growth, "even large private banks like UralSib sometimes need support from institutions like OPIC or EBRD to compete with state-controlled banks like Sberbank and VTB in major projects." ¶7. (SBU) BIN Bank Senior Vice President Oleg Kharitonov called Gref's term as the head of MEDT "unremarkable," noting that the projected reforms that became known as the "Gref Plan" never came to fruition. ¶8. (SBU) Troika Dialog Banking Analyst Olga Viselyova, on the other hand, said the nomination is "positive for Sberbank." Gref's reform-minded credentials and his interest in focusing on retail operations could yield "the ideal combined result of expanding households' access to retail credit while reducing the state's control of Sberbank." Alfa Bank's Orlova suggested that Gref could "build on Kazmin's success by increasing lending to small businesses" and expressed her hope that Gref would "be the catalyst to increase private ownership" of the bank. UBS Chief Economist Al Breach noted that Gref's "record as a competent Economic Development and Trade minister and good managerial skills" would add to Kazmin's improvements. -------------- Comment -------------- ¶9. (SBU) Gref's comments following the news of his nomination suggest that the initial phase of his leadership at Sberbank would produce few strategic changes. He will probably adopt a gradual approach in the expansion of retail services to maintain investor confidence and, by extension, share prices. End Comment. Burns