10 October, 2014

Russia Bank Mergers & Acquisitions (Sberbank of Russia)

Sberbank's promotional display at the St. Petersburg International Economic Forum (SPIEF) 2014.

Photo source: Sberbank of Russia's web site.

Sberbank of Russia

Sberbank is Russia’s oldest bank and the only surviving one that traces its history back to the Imperial era.  The massive bank is today a state-owned commercial bank but also a publicly-listed company.  The bank’s name means “Savings Bank” in Russian.

In 1841, Russian Emperor Nikolai I (known as Nicholas I in English) decreed the creation of a savings bank with offices in Moscow and St. Petersburg to encourage the population to save and keep safe their excess cash at a bank rather than, say, in a jar in their homes.  A royal court advisor became the savings bank’s first customer.  Over the next 20 years, the savings bank opened another 45 offices in nearly all of Russia’s regional capitals. 

The bank soon launched an awareness program to promote its savings account.  Despite the campaign, most of the savings bank’s clients were still wealthy merchants, craftsmen, government officials and courtiers.  The average Russian peasant or labourer simply wouldn’t possess enough free cash to be put away in a bank, a situation that was not uncommon at the time even for a vast majority in Western Europe.

In 1860, Tsar Alexander II carried out banking reforms and established the Gosbank (The State Bank of the Russian Empire).  The state’s savings bank was transferred to Gosbank.

Meanwhile, it wasn’t until the 1880s, some two decades after the abolition of serfdom, that income and money became more widespread for the vast majority of people in Russia’s far-flung countryside.  Meanwhile, Gosbank opened a large number of savings bureau desks at customs, telegraph, and local treasury offices in rural villages.  By 1895, over 3,800 savings bureau outlets served over two million individual accounts, up from 47 offices and only 140,000 accounts back in 1865.  In 1905, the saving bank’s outlets began to sell insurance, offering a state-operated alternative to private insurance companies.

It is worth noting that Russia’s savings bank operated in a rather different manner than its counterparts in Western Europe, which tended to be local and small-scale, and whose mandates were to make mortgage loans to local town people, or to finance local agricultural, educational, infrastructural, heritage or charitable projects.  Under the control of Gosbank, the Russian model was state-owned, colossal, nation-wide and aimed to channel savings from millions of “little folks” into the state coffers.  During the late 19th and early 20th centuries, Gosbank financed massive railway construction and supported industries using the low-cost savings amassed from the public.  The Russian government also relied on the population’s deposits in Gosbank to finance the Russo-Japanese War (1904 to 1905), which, to the shock of many observers, saw Russia easily and soundly defeated by Japan.

The 1910s were volatile times around the world.  The Industrial Revolution between 1760s and 1850s transformed the European economy from agricultural to industrial; and machines in relatively a short period of time displaced and replaced millions of workers first from the farm, then even in factories.  By the late 19th and early 20th centuries, millions of poor peasants and workers who lived in filthy and over-crowded slumps would longer accept the status quo of being controlled and suppressed by a tiny minority of ruling monarchy, aristocracy and wealthy industrialists.   This gave rise to a anti-establishment, socialist labour movement across Europe from Great Britain and Ireland all the way to Russia and beyond.

Meanwhile, the conservative, feudal and imperialist old guards who had ruled large parts of Europe for centuries were unprepared and largely still unwilling to adjust to the social, economic and geo-political upheavals of the industrial age.  In June 1914, a Serbian nationalist in Bosnia opposed to the Austro-Hungarian Empire’s threatening influence over Serbia assassinated Archduke Franz Ferdinand, setting off World War I one month later.

Imperial Russia’s failure to address and reform its archaic economic, social and political structures gave rise to increasing discontent amongst the vast majority of destitute people.  This, combined with the hardship and famine of World War I, finally boiled over and led to the February Revolution in 1917, which overthrew the Tsar and created the Russian Republic.  The republic’s provisional government didn’t last long, however, and eight months later was itself toppled by the soviets in the Bolshevik Revolution.

The years following the 1917 revolutions were tumultuous in Russia.  The soviets aimed to transform Russia into a state-controlled society in which private businesses were increasingly threatened.  All private-sector banks were shut down and nationalized in October 1917.  Confusion and distrust over the state’s affairs first led to a sharply reduced purchasing power of the Russian currency, then a withdrawal of money.  The Russian economy reverted back to a barter system under which food and other basic necessities became extremely scarce, and the volume of economic activity plummeted.

The role of Gosbank underwent a period of chaos following the 1917 revolutions, as the Bolsheviks aimed to abolish private ownership of properties and economic production, and to transform Russia into a system where the state-capitalist monopoly controls and owns everything on behalf of the people (“common ownership, hence “communism”).  The new Russia was supposed to be classless, wageless and moneyless: the state would manage the production and supply of everything, and distribute them evenly and fairly amongst its 95 to 100 million people.   In such a society, the idea of banking would have been absurd indeed.  In 1920, remnants of the old Gosbank were dissolved.  Merely one year later, the unfeasibility of a moneyless society became apparent, and a new Gosbank was re-established, becoming the State Bank of the USSR in 1923.  (In 1922, Russia, Ukraine, Belarus and Transcaucasia amalgamated to form the Union of Soviet Socialist Republics, also known as the USSR or the Soviet Union.) 

In the early 1930s, the State Bank of the USSR was transformed into a central bank managing money circulation and regulating short-term credit.  Meanwhile, four sector-specific banks were organized to carry out Soviet Union’s long-term state economic plans:  Prombank (for industrial development), Sel’khozbank (for agricultural development), Vsekobank (Co-operative Bank) and Tsekombank (for communal and housing development).

During the next five decades, in a typical communist state fashion, banking policies and regulations switched course several times.  Many functions of Prombank, Sel’khozbank, Vsekobank and Tsekombank were transferred back to the State Bank in 1959.  Four years later, the savings bank operations also joined the State Bank.  By now, the State Bank held central bank functions, but also acted as a deposit bank and a long-term economic development bank.

In the mid-1980s, reform-minded Soviet leader Mikhail Gorbachev adopted policies of glasnost (“openness”) and perestroika (“restructuring”), which led to the separation of functions between the central bank (State Bank of the USSR) and those banks whose mandates are to accept deposits and finance economic development.  In other words, a model that somewhat resembles the banking structure in the capitalist world.  By 1987, five sectorial banks were (re-)established: namely Vneshekonombank (Foreign Trade Bank), Promstroilbank (for industrial development), Zhilsotsbank (for housing development), Agrobank (for agriculture) and Sberbank.   The newly spun-off Sberbank (Savings Bank of the USSR) served as the umbrella institution for the many savings banks of the Soviet Union. 

Meanwhile, a bureaucratic, corrupt and de facto bankrupt economy led to the collapse of the Soviet Union in 1991.  During the next two decades, Russia underwent uncertain political, social and economic changes as liberal reformers fought the ultra-conservative hardliners for control of Russia.  Despite this ideological struggle, banking reforms in Russia did continue and in 1991, Sberbank was restructured into a joint-stock company named Sberbank of Russia, though it remains state-owned.  

With its status as the incumbent monopoly institution responsible for accepting and safekeeping personal deposits, Sberbank held 90% of all household savings in Russia in 1990.  Though Sberbank’s market share fell in subsequent years, it has a great competitive advantage over newer, private competitors due to its majority state ownership and the implied, unlimited state-sponsored deposit guarantee that comes with it.

Compared with Western banking systems, Russia’s banks remained rudimentary and backward well into the 1990s.  Sberbank, for example, only installed its first ATMs in 1993; other financial products such as credit cards were also introduced some two to three decades after its Western counterparts.

As a major step to transform Sberbank into a market-driven company, shares of Sberbank were floated on the Moscow stock exchange in 1996.

As of 2014, Bank of Russia (the central bank) holds 50% plus one share of Sberbank.  Sberbank today serves over 100-million clients through 18,400 branches, 68,000 bank machines and self-serve terminals, and on-line apps. It operates internationally in Kazakhstan, Ukraine and Belarus, nine other countries in Central and Eastern Europe, and Turkey.

Recent transaction(s):

  • In 2007, Sberbank bought NRB-Ukraine from another Russian bank for USD $15o-million.
  • In 2009, Sberbank bought 93% of BPS Bank (originally Belpromstroilbank) in Belarus, renaming it BPS-Sberbank subsequently.
  • In 2011, Sberbank acquired Volksbank International AG excluding Volksbank Romania for between Eur 585 million to Eur 645 million (amount dependent on a number of future factors).  The sellers were Austria’s Österreichische Volksbanken, German co-operative bank group DZ Bank, another German bank WGZ Bank, and France’s co-operative bank group BPCE.  The operations that Sberbank purchased (excluding the Romanian operations) had 291 branches and over 600,000 clients in Bosnia and Herzegovina, Croatia, Czech Republic, Hungary, Serbia, Slovakia and Slovenia.  This was Sberbank’s first expansion outside of the Commonwealth of Independent States.
  • In 2012, Sberbank acquired 99.85% of Turkey’s DenizBank from Belgium’s Dexia group for TRY 6.47 billion (Eur 2.82-billion, USD $3.50-billion). DenizBank had 592 branches across Turkey and 15 overseas.

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