Deutsche Bank looks well placed to cash in on a Russian IPO boom expected to accelerate dramatically in 2006, thanks to the local bank buyout it announced late on Monday.
Deutsche announced it would buy the 60 percent stake in Russian investment bank United Financial Group (UFG) it does not already own. The deal, worth about $420 million, will close in the first 2006 quarter.
Deutsche has called a news conference for 5 pm local time (1400 GMT) on Tuesday.
"This is a very strategic move," said a senior investment banker in Moscow. "Russia is red-hot right now."
Investment bank Dresdner Kleinwort Wasserstein said the deal's price multiples of roughly 2.3 times estimated book value for 2005, five times 2004 earnings and six times projected 2005 earnings were low and hinted at Russian political risk.
Deutsche joins other bulge-bracket banks seeking to cash in on Russia's bull markets amid an explosion in initial public offerings, loans and bond issues.
Russian companies have raised over $60 billion on international bond, loan and stock markets this year, generating millions of dollars of fees for investment bankers.
Some banks are starting from scratch, such as Goldman Sachs, which is reported to be hiring 100 bankers in Moscow, and Morgan Stanley, which only recently began trading Russian stocks, bonds and currency instruments.
Others active on the ground, such as ABN Amro and BNP Paribas, are all in expansion mode, banking sources said. Citigroup Inc, ING, Credit Suisse First Boston and Dresdner, a unit of Allianz, have also recently boosted their Moscow trading operations.
Russia was lumped with Latin America's worst debtor nations back in 1998 after its $40 billion default, which sent foreign banking giants fleeing the country with big losses. Now it is awash with petrodollars, with energy revenues flowing in at a rate of $500 million a day.
IPO BOOM Charles Ryan, a 38-year-old American who co-founded UFG a decade ago, will head up a Russian operation operating under the Deutsche brand. It will include UFG's private and commercial operations, but not its fund management business.
Ryan said in a newspaper interview that Russian companies would raise about $16 billion in around 25 initial public offerings in 2006, up from about $5 billion raised in 2005.
"This (deal) will take us to a new level where we will be competing on the London market with global investment banks in the IPO business," he told the Vedomosti business daily.
"And in Russia, it'll be very difficult to compete with us."
Deutsche had long been expected to take over UFG after it bought a 40 percent stake in 2003 in a deal valuing the brokerage at $200 million, with an option to buy out the rest. Most equity valuations have since doubled on the back of record prices for Russian exports of oil, gas and metals.
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