The Man Who Finds Money Even Where There Is None Part One

Nicholas Greene: We hope to get the biggest piece of the pie
In September, Russia’s Rosbank announced creation of a Structured Finance Group which would be focused on attracting foreign investments to Russian enterprises and on the development of securitization, a very popular financing system in the West. Rosbank Senior Vice-president Nicholas Greene is the head of the project.

PRAVDA.Ru correspondents interviewed Mr. Greene.

Mr. Greene, how did the idea of the Structured Finance Group come about?

– The project was conceived early this year during a meeting with Rosbank Chairman Eugeny Ivanov, whom I've known for a number of years. We were talking about banking, structured financing in particular, there’s a tremendous opportunity for development of this technology in the Russian financial community. From that conversation came a proposal to join the Rosbank team and the Board of Directors approved the creation of the Structured Finance Group.

I have been a banker for a number of years, so my banking experience gave me the opportunity to chose where and with whom I would work. I really appreciate working with the solid and forward looking team here at Rosbank. The team headed by Eugeny Ivanov are the people with whom I want to work. Are Western businessmen really willing to invest in Russia? Is your mission to bring Western investment here?

- Russia has been always attractive to the West. However, I don’t see my primary mission as bringing more foreign capital into Russia. I see my primary mission as an effort to transfer technologies and financial methodologies to the Russian financial community, stimulate domestic investment.

Do you think the environment here is ready for this?

- The contemporary banking system of Russia is young. Think about the banking system in 1989, the Perestroika era. The banks were looking to establish an identity under an uncertain legal code, not sure of what they could and couldn’t do. They also had to deal with a lack of leadership from any regulatory sort of committee in the federal government. They had no sense of what to do and then the financial crisis in 1998. Only now are they beginning to escape, to finally leave behind them, to be able to forget the problems of 1998 and the financial crisis. Now the financial community is beginning to look at the challenges in front of it as a set of financial institutions.

Why do you think the banks in Russia failed to realize their potential earlier? - Many of the banks before were “private pocket” banks that supported the interests of industrial groups, privately held industrial groups. Now they are at the stage when they actually can become independent financial institutions and start to function as true financial intermediaries and provide services and products which are in demand in the market. To my mind, Rosbank wants to become this financial institution, we have seen this by the changes which recently occurred in the Board of Directors. That is why I am happy I can contribute my abilities and experience in this bank.

What is your opinion of the banking legislation here in Russia and efforts the government made in this sphere? What faults in the legislation hamper the bank reform?

- It is evident that the legislation system isn’t mature here in Russia; there isn’t the history of a legal system comparable to the legal systems in Europe or North America. There are still many laws contradicting each other. The government is looking for other legal systems as a model to copy. But the models can’t be taken word for word into another country, because this is a different country, a different culture, a different system and a different philosophy of life. So, it is impossible to implement any foreign model in Russia.

The problem of building a court system is also pressing for Russia; training of judges, establishment of procedures for the courtroom, the adoption and development of a legal code and development of an infrastructure to implement this code, all of these things are in the process of development here. I’m not a lawyer and don’t know details of Russian law practice, my opinion is an opinion of a banker. This is a very positive movement and also supportive for commercial and banking activities. But Russia is still at the very beginning of the way. There are lots of banking services which are well developed in Europe and North America that don’t exist here in Russia. The reason they don’t exist here yet is because Russia has no adequate legal code. What kind of services do you mean?

- There is a system called securitization which is well developed in Europe and North America. What happens in securitization is that banks don’t traditionally lend money to borrowers after taking it from depositors. Instead, banks bring the investor directly together with the borrower. I think the technology is a potentially good thing for Russia, as the banks here are small, except for Sberbank, very small. One of the principles of banking is that the amount of money you lend depends on much capital you have. If the capital is small, the capacity of the banking system to act as a financial intermediary is limited. The technology of securitization permits the financial system to grow independently of the capital in the banking system. Which industries of the Russian economy will the Structured Finance Group target for investing in first?

- So-called extracted industries were the first to get access to the Western European financial community; that’s the largest oil and gas companies. Russia’s largest energy producers and base metal exporters are well known abroad. Currently, the West is very interested in working with Russia’s companies of a so-called second tier, producers of industrial goods and services. But generally speaking, any companies can profit from the technology we suggest. Do you mean companies belonging to the Interros holding, where Rosbank belongs as well?

- The mission of our group is to earn money for Rosbank. The key advantage of securitization technology is that the bank takes less risk in lending money to companies, thus helping them develop. Services of the Structured Finance Group will be available to all companies regardless of their size. From the point of view of Rosbank’s interests the Group will focus on those clients which will earn the largest profits for the bank. Why don’t Western investors find borrowers independently and leave the banks out of it? It is often done here in Russia.

- It is inefficient for them, highly inefficient. Banks are more professional than investors themselves in identifying which borrowers need to be screened. Banks still play a very important role in assisting investors in identifying the proper borrowers and further protection of the creditor’s interests. Unlike in classical commercial banking, the bank acts as a guarantor and an intermediary, which is also more convenient and safer for investors. Is there a greater profit margin for the bank using securitization and is that the reason for shifting to the new system of banking?

It is not correct to speak about profit here. However, the return on the shareholder’s capital and the return on the investment that the bank has made is higher. The income that is received is fee income not risk income, so the financial community benefits from this development as well. So, absolute profits are not higher, but the "bang for the buck" is a lot better.

For reference: Nicholas Greene has been working with the largest international banks for 25 years, for instance, Chase Manhattan Bank and Dresdner Bank subsidiary in New York. In 1987-1999, he worked as the chief executive and co-founder of the Structured Finance Group with West LB. Before his appointment in Rosbank, Mr. Greene worked as an aide to the president of Access Industries investment group. The interview to be continued

David Misselt Dmitry Sobodanuk PRAVDA.Ru

Translated by Maria Gousseva

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