The distinctive image of a bank like Coutts is finding fans among the high net worth populations of the former Soviet Union and Eastern Europe, one of its top managers says.

Russia
and Eastern Europe may not generate quite the
same buzz in wealth management as the Asia-Pacific region does but the sheer
wealth of some inhabitants means it is a strategically important zone for
wealth managers.

A firm with a very “British” brand that is also expanding
its footprint into these markets, where the UK connection has a pulling power, is Coutts. This blue-blooded bank is moving from a position where around 40 per
cent of its business – based on various metrics – is international to one where
60 per cent of it will fall into this category.

An issue is how does a bank, refreshing its brand and
looking to give itself a more international profile, cope in a market that has
at times suffered from adverse publicity about the behaviour of energy-rich
oligarchs and the hard-line policies of Vladmir Putin in Russia? On the
other hand, some of the numbers are alluring. There were 159,000 high net worth
individuals in Russia
in 2011, according to latest industry figures, with combined wealth of $941
billion. (A good many of such persons live all or most of their lives outside
the country, in places such as the UK
and Western Europe.) About a third of this HNW
wealth is held offshore.

The former CIS/East Europe region is not an easy market to
crack but Coutts is confident it is making the right choice to give it close
attention, as Michael Vlahovic, head of private banking for Central and Eastern Europe, told this publication in a recent
interview. The main areas in his business are Russia,
Ukraine,
and Khazahkstan. Other, “satellites” of interest are Georgia,
Armenia and Azerbaijan.

The Coutts brand is gaining strength across Russia/CIS , he
said, particularly because, “the number of Russians who have moved to or simply
bought property in London means that the name has become a lot more visible to
them”, he said. “That proximity to the brand is a big driver for us.”

“The Russia/CIS market started to really evolve in the early
1990s; through to the Millennium, the biggest challenge was understanding what
was going on in terms of the provenance of the new wealth being created,”
Vlahovic said.

“Transparency has greatly improved from where it was 15
years ago or even 5 years ago. I n many ways getting the requisite amount of
information in Russia
is as straightforward as in other geographies," he continued.

Vlahovic has been in his current post since April 2010 and
has been instructed to grow the bank’s presence in selected Eastern European
markets. Before joining Coutts, Vlahovic was at Credit Suisse, where he
developed its private banking operations in Russia,
the Ukraine, Kazakstan, Poland
and Greece.
Prior to joining Credit Suisse in 1995 he worked for Nomura, the Japanese
brokerage and investment banking giant.

Focusing on the big
ones

He explained that over recent years, Coutts has decided to
focus on those markets where it has the most chance of winning and retaining
business without the distractions of widely diverging local regimes. The bank,
for example, does not focus on “Central Europe” or what might be loosely termed
the old Warsaw Pact nations, such as Poland
and Hungary.
There are too many differences and local features requiring considerable
investment of time and money to achieve returns. In contrast, a market such as Russia is much more
scalable and thus strategically important for investment, he said.

The decision to focus on this and other select ed markets
across our International Franchise was taken after a review of Coutts’
business, which started around two-and-a-half years ago, was reconfirmed last
year.

The background environment is broadly benign, albeit with
some caveats and stock market performance has been volatile in Russia, for
example, in recent years. As reported in the RBC Wealth Management/Capgemini
survey of trends last year, gross domestic product expanded by 3.8 per cent in Eastern Europe in 2011, from the year before, mainly due
to growth in the emerging economies of this region despite the eurozone crisis.

In Russia,
in the period between 1995 and 2012, annualised real returns on equities were 5
per cent; on bonds, 6.1 per cent (Source: Credit Suisse). Russia still is
very heavily tilted towards energy and natural resources. At the start of this
year, 55 per cent of the Russian stock market comprised oil and gas firms. In the
decade after the 1998 crisis, Russia
chalked up an annual average growth rate of 7 per cent – so no wonder the place
has generated a large cohort of high net worth individuals.

Finding talent

People with specific talents – such as language skills and
knowledge of the local scene – are needed to make these market segments work. The
pool of private bankers with a good knowledge of the Russia/CIS market is
relatively small, both inside and outside the region, he said. In London, for example, there are probably no more than
around 30 such people; when people from other European centres are added, such
as Zurich and Geneva, the figure will still probably not
exceed 150.

“We have a mix of people who speak Russian and those who
don’t,” he said.

He said that as many Russian clients are living outside the
country and used to speaking English or languages such as French, the ability to
speak Russian is not always crucial. In fact, Russian clients, given the
diaspora around the world, are on some measures the most cosmopolitan and
international type of clients of all.

“They really operate on a global basis,” he said. “Of all
high net worth groups in the world, the Russians are more cosmopolitan in terms
of where and how they made and now invest their money.”

“I am on the look-out at all times for bankers with the
skills to make an impact among Russian clients. I want those with a good track
record of operating in this space,” he added.

Vlahovic and colleagues will hope that by the time Russia plays
host to the World Cup soccer tournament in 2018, that the feel-good factor that
is associated with such jamborees is not just felt by players or fans, but by
Coutts’ clients and advisors.