In two years, Otkritie FC Bank’s Konstantin Tserazov has transformed its investment business through a three-way split between its bond portfolio, repurchase agreements and derivatives. Now, he tells Stefanie Linhardt, he intends to diversify the Russia-focused bank even further.

Konstantin Tserazov embedded

A young bank with a young team is a good description of Otkritie Financial Corporation Bank and its head of investment business, Konstantin Tserazov. 

Otkritie FC Bank was only established under its current name in 2014, after the acquisition of the then sixth largest Russian bank (by assets) Nomos Bank made Otkritie the country’s fourth largest lender. In 2015 it merged with the operations of Russia’s Petrocommerce Bank; it is also parent company to retail bank Khanty-Mansiysk Bank Otkritie, which is in the process of being merged into the parent in the third quarter of 2016. Now the investment business of the two-year-old bank has found a strong match in its head, 35-year-old Mr Tserazov.

A bank transformed

Elected to the bank’s management board in April, Mr Tserazov joined Otkritie in 2013 to lead the bank’s fixed-income, currencies and commodities department and he was there at the merger and creation of the investment banking operations of today’s Otkritie FC Bank. He took over the investment business in 2015, and went on to transform it.

“Historically Otkritie was very big on the repo [repurchase agreement] market and the income from this amounted to 50% to 75% of our profit and loss,” says Mr Tserazov. “My main goal is to diversify our investment banking products to make the bank’s income base more balanced.”

He gradually strengthened other parts of the investment banking unit to widen the scope of the bank. The investment banking arm has three core businesses, each accounting for about 30% of profits: the bond portfolio, “a natural product for the bank”; repo, “a product for the market”; and derivatives and rates, says Mr Tserazov, as well as an additional 10% generated by the investment banking and debt capital markets (DCM) division and other parts of the investment business.

“If you are in trading or management, your main targets are the same: to make money for the shareholders while controlling risk,” he adds. “The only matrix you can change is the proportion of risk you allocate to one product or another, while sticking to the general risk appetite of the institution.”

Mr Tserazov, who started his career as a convertible bonds trader at BNP Paribas in Paris in 2002, worked his way up from salesperson. After gaining experience at France’s largest bank for two years, he joined Russian investment bank Troika Dialog in 2004, which was taken over by the country’s largest bank, Sberbank, in 2011. By the time he left Sberbank in 2012, he was deputy head of global markets.

A Russian business

At Troika Dialog – and later Sberbank – Mr Tserazov encountered the strategy of covering corporates from multiple angles with multiple products. It was something he transferred to Otkritie, where he adopted a similar approach but with a distinct focus on seeking solutions to clients’ problems. For this, Otkritie has a specific structuring and solutions group taking care of clients’ individual needs, and covering approximately 150 of Russia’s largest corporations.

The group’s expertise gives the bank its competitive advantages according to Mr Tserazov, who says: “We are ready and willing to spend more of our time on clients and their specific issues than others. The focus is very much on the quality of solutions. We are fighting for clients and spend a lot of time asking ourselves: are our products, services and solutions good enough?”

Otkritie is a Russian bank that focuses mainly on Russian clients and it is happy to stick mainly to its home turf. “We are working with only selected companies from abroad,” says Mr Tserazov. “Today, we are focused primarily on the Commonwealth of Independent States [region] and we are developing this business very carefully as we know our home territory very well. Additionally, of course, we have business lines with major global players on the market in terms of repo, interbank lending and fixed income trading.”

And while there are other banks operating in investment banking within Russia – such as local market leader VTB Capital and Sberbank’s corporate and investment bank – Otkritie FC Bank is distinguished not least by its shareholders. “We are the biggest privately owned Russian bank,” says Mr Tserazov. “This helps us because our main competitors are still largely government owned. These banks are highly respectable and very big, but at the same time quite slow. We are way faster.”

The fact that Otkritie is privately owned also attracts business from non state-owned companies, he adds.

DCM drag

Alongside its traditional strengths of brokerage services and trading in cash, foreign exchange, commodities and interest rates, as well as derivatives, Otkritie also offers investment banking products to clients. Yet Mr Tserazov notes that the traditional DCM business – the Eurobonds, rouble-denominated bonds and structured bonds – has slowed.

Otkritie also counts the mergers and acquisitions (M&A) and equity capital market (ECM) business as part of its so-called DCM business, as well as margin loans and mezzanine. “The issuing of bonds, which started to grow in Russia in 2004, is now very quiet. Also, the amount of ECM and M&A transactions is pretty limited these days,” says Mr Tserazov.

Russia is still suffering from a difficult economic environment with high borrowing costs (the central bank’s policy rate was at 11% at the time of writing), a contraction in the economy, as well as ongoing sanctions. Gross domestic product fell by 1.2% year on year in the first quarter of 2016, while forecasts by the International Monetary Fund suggest the country's economy will contract another 1.85% at constant prices in 2016, after 2015’s 3.75% slump.

But there are opportunities in most circumstances, and the challenges in the economy open up a market for additional protection – in Russia’s case, mezzanine. “The mezzanine market is very, very active in Russia,” says Mr Tserazov. “Our investment bank is still new, so we can’t say we are leading the market on this, but mezzanine is something we are working on.”

In Russia, mezzanine is widely used to provide additional protection for lending institutions. “In the current situation, mezzanine financing is more about providing additional upside on a loan than about using it to finance, say, an M&A transaction. We can provide the balance sheet or be the agent through our corporate banking unit. They would be providing the financing or would find someone else to do so,” says Mr Tserazov.

Regulatory opportunities

Still, creativity is required in some circumstances and Mr Tserazov has spotted an opportunity in one of Russia’s regulatory requirements to improve returns.

The Russian central bank requires financial institutions with a banking licence to hold a liquid portfolio of Russian securities. The portfolio is intended to act as a liquidity buffer, enabling the bank to quickly sell its positions if required. At Otkritie FC Bank this portfolio amounts to about $6bn, and, as required by the Russian central bank, at least 95% needs to be repo – largely Russian rouble-denominated bonds and Russian Eurobonds.

Yet Mr Tserazov believes that while adhering to the requirements, and while the portfolio serves as a risk buffer, it could also be a means to generate higher returns. “We are aiming at allocating around 2% to 3% [of the mandatory securities portfolio] to equities, derivatives and even commodities but we are now considering managing the portfolio more as a hedge fund portfolio rather than a treasury portfolio,” he says.

He adds that banks are “stuck” between the need to make money, the very expensive funding environment and low returns on securities. “If you just keep the portfolio as it is, it has a zero carry. By embracing the hedge fund mentality you can trade more event-driven, you can create additional returns,” says Mr Tserazov.

These extra returns would be a welcome addition to the balance sheet for a young investment bank acting in Russia's still-challenging economic environment. But Mr Tserazov has more plans. “My next job is to diversify the business even further,” he says. He aims to achieve equal profit contributions of 25% across its business lines of repo, securities portfolio, trading and the financing operations – all of which promises fruitful times ahead.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter