The smart money moves to Moscow

Just over 15 years since Russia scrapped its centrally planned economy, investment bankers in Moscow are now earning double the pay of their counterparts anywhere else.

Dealmakers such as Ed Kaufman, who left UBS AG in March for Alfa Bank, and Nicholas Jordan, who will run Lehman Brothers Holdings Inc's new Moscow office, are offered $7 million and more a year, industry recruiters said. In New York, managing directors who arrange corporate mergers and stock and bond sales typically get $2 million to $3 million, according to estimates from headhunters at Options Group and Napier Scott Executive Search Ltd.

"This market is hot, hot, hot, and if you want to keep top talent, you have to pay big," said Peter Necarsulmer, chief executive officer of PBN Co, which advises foreign companies investing in Russia including BP Plc and Merrill Lynch & Co.

The oil market's five-year boom, record numbers of initial public offerings and the fastest-growing major economy in Europe have combined to drive up salaries during the past 12 months. The Russian market has attracted US securities firms led by Goldman Sachs Group Inc, Merrill and Lehman, which are on a hiring binge as they compete with local rivals Renaissance Capital, Troika Dialog and Alfa Bank for the most experienced staff.

"Russia has been spectacular in terms of wage growth for western-trained, Russian-speaking bankers," said Yiannis Demopoulos, an industry recruiter at Delta Executive Search, who spends much of his time these days in Moscow. Demopoulos said pay packages of $7 million to $10 million are common for managing directors in the city. "There are just not enough high-quality guys and the shortage creates the spike in price."

Inside Moscow's Garden Ring, bankers spend $7 million for a five-room apartment near the Bolshoi Theater, drop $350,000 for a Bentley at the car dealership next to Revolution Square, and rent private dining rooms at Turandot, a new $50 million two-story restaurant furnished in a late 18th century Marie Antoinette theme, complete with musicians in white wigs playing chamber music.

Alfa Bank, Moscow's largest closely held bank, lured the 41- year-old Kaufman from his job as UBS's investment-banking chief in Russia with a multi-year contract that could net him $20 million if targets are reached, said two people with knowledge of the hiring. Jordan is getting as much as $7 million to join Lehman, according to sources. Jordan hasn't started at Lehman yet and he wasn't available for comment.

Poorer US cousins

By comparison, senior US bankers in the mergers, equity and debt underwriting departments typically receive salaries of about $200,000 and bonuses of $2 million to $3 million, according to consultants at Options Group. Executives running investment-banking units in Frankfurt and Milan make nowhere near $10 million.

Compensation for bankers in Russia rose by about 25 percent last year, exceeding the 15 percent to 20 percent increase in the United Kingdom, said Shaun Springer, London-based CEO of Napier Scott. Income taxes in Moscow are 13 percent, while anyone who earns more than 42,055 pounds in the UK pays 40 percent.

Industry recruiters at RosExpert estimate that about 150 senior corporate bankers work in Moscow, compared with more than 1,000 in New York. Top dealmakers in New York, still the world's financial capital, can take home as much as $20 million, including bonuses that depend on the fees they generate for their firm, according to Options Group.

There's "a shortage of strong managers" in Russia to handle the record demand for merger advisory and underwriting services, said Igor Shekhterman, co-founder of Moscow-based RosExpert, who's trying to recruit senior bankers for two local firms.

Merrill's Mike Eggleton left last year for Moscow-based Trust Investment Bank. The firm then recruited 46-year-old Bernard Sucher, co-founder of Troika Dialog, in February to run its Moscow office. Gordon McCulloch, a managing director at Goldman, left in March for Moscow-based Renaissance Capital, the same month that UBS's Kaufman joined Alfa Bank and Lehman hired Jordan from Deutsche Bank AG. None would comment on their pay.

"If you want a banker to move, you have to offer a guaranteed multi-year deal and title bump," said Demopoulos of Delta Executive Search. "It's a huge commitment."

Securities firms want "a combination of western experience and an understanding of the local conditions", said Kaufman, who worked for UBS in Moscow for four years. "That is hard to find. And they are having to compete for that small pool with the big guys like Rusal."

Eric Kraus, a strategist-turned-investor who moved to Moscow in 1997, said US investment banks are paying too high a price to attract talent just as six years of stock market gains may be about to end.

"The global banks are always either in front or behind the curve, and this time they're behind it," said Kraus, who worked at Societe Generale SA and Dresdner Bank AG before starting an investment fund.

Bloomberg News

(China Daily 05/15/2007 page15)