Moscow Bankers Get $7 Million Payday, Double New York Average
By Elisa Martinuzzi and Todd Prince
May 14 (Bloomberg) -- Within a mile of the tomb of Vladimir Lenin, who vowed to destroy capitalists, 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 U.S. 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.''
Garden Ring
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, said two people familiar with the matter. Jordan hasn't started at Lehman yet and he wasn't available for comment.
U.S. Counterparts
By comparison, senior U.S. 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 U.K., 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 ($83,700) in Britain 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.
`Former Spies'
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.
``Before, banks were hiring former spies and politicians,'' he said. ``Now, they're after experienced professionals.''
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.''
`Behind the Curve'
Eric Kraus, a strategist-turned-investor who moved to Moscow in 1997, said U.S. 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.
Risks are emerging again as Russian President Vladimir Putin prepares to step down next year, money managers Bill Browder of Hermitage Capital Management Inc. and Samuel Lieber at Alpine Management & Research LLC said in the past month.
While Putin has been credited with stewarding the longest period of political and economic stability since the rule of Leonid Brezhnev in the 1960s and 1970s, his relationship with the U.S. and Europe has worsened because of his crackdown on opposition groups and the free press. Russia and the west also are at odds over the Kremlin's attempts to retain influence in the former satellite states of Georgia, Ukraine and Kazakhstan.
Paulson's View
Securities firms are shrugging off concerns about the potential for political and economic instability less than a decade after Zurich-based UBS and Credit Suisse Group and New York-based Citigroup Inc. lost more than a combined $2 billion when the government defaulted on its debt.
U.S. Treasury Secretary Henry Paulson, who was paid $38.3 million during his last full year as Goldman's CEO in 2005, has said economic development is a spur to political liberalization. Goldman has identified Brazil, Russia, India and China as the four most important developing economies.
``There's sort of an unnatural act to have economic freedoms without having political freedoms follow,'' Paulson said on April 20 in an interview on the ``Charlie Rose'' show on PBS television in New York, responding to a question about China. ``Any country that engages in economic reform and economic freedom, and moves to market-driven principles, will ultimately move in that direction. And if they don't, there will be a problem.''
Blankfein's Visits
Treasury spokeswoman Michele Davis in Washington didn't immediately respond to a request to speak with Paulson on how political conditions in Russia may affect its economy.
Goldman CEO Lloyd Blankfein will meet with businessmen and politicians in Russia for the second time this year when he attends the St. Petersburg Economic Forum in June. He sat down last month with First Deputy Prime Minister and presidential candidate Dmitry Medvedev. Goldman plans to double its staff in Moscow to 70.
``Three to four years ago we were less than 20 people and now we're about 100,'' said Rair Simonyan, head of New York-based Morgan Stanley's Russia unit. ``It's extremely difficult to manage such exponential growth.''
Morgan Stanley, the world's second-largest securities firm by market value after Goldman, is the top-ranked manager of share sales in Russia during the past three years, followed by Deutsche Bank and Credit Suisse, data compiled by Bloomberg show.
Red Square
Behind Lenin's Red Square mausoleum, the Kremlin has a hand in many of Russia's biggest deals, 15 years after the collapse of the Soviet Union.
State-owned oil company OAO Rosneft sold $10.7 billion of stock last year in an initial public offering. New York-based JPMorgan Chase & Co. was among the advisers after arranging a $7.5 billion loan for the company. Government-controlled VTB Group, Russia's second-biggest bank, raised $8 billion last week in the world's largest IPO of 2007.
Companies in Russia have raised $16.7 billion in 2007 by selling shares, more than companies in any European country and equal to about 22 percent of the region's total, up from 4 percent in 2005, according to Bloomberg data. Companies in Germany, Europe's biggest economy, sold $7.8 billion of stock this year and U.K. companies placed $12.5 billion.
Troika Dialog
The combination of record share sales and mergers and acquisitions will increase investment-banking fees at an annual rate of 35 percent in the next five years, said Ruben Vardanian, the 38-year-old chairman of Troika Dialog, Russia's oldest independent securities firm. Moscow-based Troika boosted staff to 800 from 500 in the past year.
``You need to be in Russia because of the pure size of the market and to gain access to the eastern European markets, Ukraine and Kazakhstan,'' said Springer of Napier Scott. ``It's never too late.''
By Elisa Martinuzzi and Todd Prince
May 14 (Bloomberg) -- Within a mile of the tomb of Vladimir Lenin, who vowed to destroy capitalists, 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 U.S. 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.''
Garden Ring
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, said two people familiar with the matter. Jordan hasn't started at Lehman yet and he wasn't available for comment.
U.S. Counterparts
By comparison, senior U.S. 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 U.K., 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 ($83,700) in Britain 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.
`Former Spies'
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.
``Before, banks were hiring former spies and politicians,'' he said. ``Now, they're after experienced professionals.''
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.''
`Behind the Curve'
Eric Kraus, a strategist-turned-investor who moved to Moscow in 1997, said U.S. 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.
Risks are emerging again as Russian President Vladimir Putin prepares to step down next year, money managers Bill Browder of Hermitage Capital Management Inc. and Samuel Lieber at Alpine Management & Research LLC said in the past month.
While Putin has been credited with stewarding the longest period of political and economic stability since the rule of Leonid Brezhnev in the 1960s and 1970s, his relationship with the U.S. and Europe has worsened because of his crackdown on opposition groups and the free press. Russia and the west also are at odds over the Kremlin's attempts to retain influence in the former satellite states of Georgia, Ukraine and Kazakhstan.
Paulson's View
Securities firms are shrugging off concerns about the potential for political and economic instability less than a decade after Zurich-based UBS and Credit Suisse Group and New York-based Citigroup Inc. lost more than a combined $2 billion when the government defaulted on its debt.
U.S. Treasury Secretary Henry Paulson, who was paid $38.3 million during his last full year as Goldman's CEO in 2005, has said economic development is a spur to political liberalization. Goldman has identified Brazil, Russia, India and China as the four most important developing economies.
``There's sort of an unnatural act to have economic freedoms without having political freedoms follow,'' Paulson said on April 20 in an interview on the ``Charlie Rose'' show on PBS television in New York, responding to a question about China. ``Any country that engages in economic reform and economic freedom, and moves to market-driven principles, will ultimately move in that direction. And if they don't, there will be a problem.''
Blankfein's Visits
Treasury spokeswoman Michele Davis in Washington didn't immediately respond to a request to speak with Paulson on how political conditions in Russia may affect its economy.
Goldman CEO Lloyd Blankfein will meet with businessmen and politicians in Russia for the second time this year when he attends the St. Petersburg Economic Forum in June. He sat down last month with First Deputy Prime Minister and presidential candidate Dmitry Medvedev. Goldman plans to double its staff in Moscow to 70.
``Three to four years ago we were less than 20 people and now we're about 100,'' said Rair Simonyan, head of New York-based Morgan Stanley's Russia unit. ``It's extremely difficult to manage such exponential growth.''
Morgan Stanley, the world's second-largest securities firm by market value after Goldman, is the top-ranked manager of share sales in Russia during the past three years, followed by Deutsche Bank and Credit Suisse, data compiled by Bloomberg show.
Red Square
Behind Lenin's Red Square mausoleum, the Kremlin has a hand in many of Russia's biggest deals, 15 years after the collapse of the Soviet Union.
State-owned oil company OAO Rosneft sold $10.7 billion of stock last year in an initial public offering. New York-based JPMorgan Chase & Co. was among the advisers after arranging a $7.5 billion loan for the company. Government-controlled VTB Group, Russia's second-biggest bank, raised $8 billion last week in the world's largest IPO of 2007.
Companies in Russia have raised $16.7 billion in 2007 by selling shares, more than companies in any European country and equal to about 22 percent of the region's total, up from 4 percent in 2005, according to Bloomberg data. Companies in Germany, Europe's biggest economy, sold $7.8 billion of stock this year and U.K. companies placed $12.5 billion.
Troika Dialog
The combination of record share sales and mergers and acquisitions will increase investment-banking fees at an annual rate of 35 percent in the next five years, said Ruben Vardanian, the 38-year-old chairman of Troika Dialog, Russia's oldest independent securities firm. Moscow-based Troika boosted staff to 800 from 500 in the past year.
``You need to be in Russia because of the pure size of the market and to gain access to the eastern European markets, Ukraine and Kazakhstan,'' said Springer of Napier Scott. ``It's never too late.''
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