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Morgan Stanley expands to Russia markets

Morgan Stanley will start trading Russian stocks, bonds and currency instruments as early as next month as top investment banks flock to the country to profit from its soaring markets.
/ Source: Reuters

Morgan Stanley will start trading Russian stocks, bonds and currency instruments as early as next month as top investment banks flock to the country to profit from its soaring markets.

The Wall Street bank has hired 35 new employees in Moscow and has received a license from the Russian central bank, the head of Morgan Stanley in Russia, Rair Simonyan, told Reuters on Friday.

Trading may start as early as mid-September, and Chief Executive John Mack, who recently returned to bring the bank stability after months of management turmoil and executive departures, is expected to attend the official opening in October.

"This is a very big commitment. It is the biggest investment by Morgan Stanley in Europe for some time," Simonyan said. "It means we believe in Russia, in the foundations of the country's economic growth and in political stability."

Sources familiar with the situation said Morgan Stanley had spent about $50 million on building its Moscow sales and trading operation. Simonyan refused to comment on how much the bank has spent.

Bulge-bracket banks, many of which lost billions after Russia defaulted on its domestic debt in August 1998, are adding staff and boosting trading and sales to take advantage of Russia's bull markets, a surge in IPOs and a booming economy.

Citigroup Inc., ING, Credit Suisse First Boston and Dresdner, a unit of Allianz, have expanded Moscow trading operations, while Deutsche Bank owns 40 percent of local investment bank United Financial Group.

They join Moscow veteran UBS AG, which has long had sales and trading on the Russian market and weathered the 1998 crisis.

Moscow-based traders said the entrance of some of the world's biggest banks could change the landscape of the Russian market to the detriment of local brokerages.

"These big banks are coming to town, and they can do things that we simply cannot do because of the capital they have behind them," said a senior trader at a Moscow brokerage.

"This is going to have a massive influence on the shape of the Russian market," added the trader, who requested anonymity.

Simonyan said he wanted to boost the number of products on the Russian market, which fund managers say is still shallow.

"We want to trade on the local market, and the opportunity cost of not being here is just too high," Simonyan said.

"We want to be able to offer our Russian clients a wide menu of services, and we want to offer a whole range of new products, above all connected with derivatives."

Morgan Stanley first entered the Russian market in 1994 but scaled back operations after the country's $40 billion default almost exactly seven years ago.

At the time, many bankers in London and New York swore never to return, but now bankers say conditions are different.

Moscow is awash with money as record prices for oil and gas drive the economy, which is forecast to grow to 24.4 trillion roubles ($856 billion) next year. Russia is paying off debt early, and foreign currency reserves exceed its foreign debt.

Russian stocks rose to a record earlier this month, while the spread between U.S. Treasuries and Russian Eurobonds also narrowed to records.

Morgan Stanley has built a strong reputation on the Russian market for investment banking, with even top competitors praising the bank's connections.

This year the bank has arranged several major initial public offerings, including the $1.6 billion London listing of conglomerate Sistema, the biggest ever IPO by a Russian company.