VTB Capital bulks up commodities team in Asia

The Russian investment bank builds up its commodities team in Hong Kong to capture growth in Asian demand.

VTB Capital bulks up commodities team in Asia

VTB Capital has made senior hires in its commodities business in Hong Kong, as part of its bid to intermediate more of the swelling trade between Russia and China.

The investment banking arm of VTB, Russia’s second biggest bank, has hired Charles Smith this year from Avra Commodities. Before that Smith worked at commodities trader Noble Group.

VTB Capital is also bringing on board Dan Rose from Societe Generale in a senior position, based in Hong Kong.

“While we are a new player in the region, we have put a number of senior people there who have a lot of experience dealing with Asian clients. If you cannot wait to develop the know-how quickly you can always hire talent,” said Atanas Djumaliev, head of global commodities at VTB Capital, during an interview with FinanceAsia.

Losing staff is a serious blow to operations in the commodities trading business, which relies heavily on the networks and expertise of its traders.

Several global banks have pulled back from commodity trading due to increasingly onerous capital charges in the wake of the 2007-2008 global financial crisis. Deutsche Bank, for one, cut staff in 2013

Once Asia’s largest commodities trading house, Singapore listed Noble Group has also been retrenching since February 2015 when Iceberg Research said it had overstated assets by billions of dollars.

“Our expansion in Asia will not be an overnight event. In places like China it takes years of track record and relationship building to be successful,” Djumaliev said.

The bank also relocated its global head of commodities trading, James O’Brien, to Hong Kong from London a couple of months ago. The West Point graduate worked for several years in Singapore for various companies including Goldman Sachs and Lehman Brothers.

VTB Capital hired Gregory Frith in July from ICBC Standard Bank as its global head for precious metals trading. Frith moved to Hong Kong from Dubai.

Edward Finch also moved from Dubai to join VTB Capital in Hong Kong to run dry bulk trading in commodities such as iron ore, steel and coal. 

The hires bring the team in Hong Kong to five people. Globally, VTB Capital employs 45 people in its commodities business.

VTB Capital most mature business in the division is gold, but other products are growing faster in terms of contribution to revenues. 

Trade growth

VTB Capital has ramped up investment in the commodities business from this year. 

“Our next job is to establish the books in all of these underlying asset classes and develop the client relationships,” said Djumaliev who is based in Moscow.

Its strategy appears sound. Asia is the biggest consumer market for commodities, and Russia has plenty to sell.

“Hong Kong is the place, where, until recently, we had the least presence in terms of commodities and we can have the most impact by being located there,” said Djumaliev, who is Bulgarian.

China has been Russia’s biggest trading partner for years. Bilateral trade has bounced back somewhat with the rebound in commodity prices after dipping in 2015. Sino-Russian trade volume from January to September reached $61.6 billion, up 22% from a year earlier, according to the Kremlin.

Russian President Vladimir Putin said in November that he was confident that this year trade would reach $66 billion.

Atanas Djumaliev looks east

VTB is putting in the infrastructure to help it facilitate this trade. It is the only Russian bank to have a branch in Shanghai, which gives it the ability to do things such as domestic currency settlement.

“We see a lot of synergy between our Hong Kong commodity business and our Shanghai operations,” said Djumaliev who said VTB Capital is looking into setting up the infrastructure to be able to trade onshore.

Its Shanghai branch will provide operational support for the gold business; at the moment the trading business is leaning on the balance sheet of the bank in Moscow.

VTB also has a relationship with one of the fastest growing commodities houses in China, state-owned CEFC China Energy, after lending it capital to buy a 14.16% stake in Russian oil major Rosneft. 

Also in VTB’s plans for next year is looking at opportunities in places like Thailand, Indonesia and Malaysia.

“You shouldn’t ignore the breadth of economic opportunity around the region. Some of these countries are massive importers of raw materials and have the fastest growing economies in the world,” said Djumaliev.

 

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