Chunilal hire shows VTB’s ambitions

Euromoney, February 2012

VTB Capital has big ambitions; that’s well-known. The Russia-based investment bank has been steadily building in Asia for several years, and launched its Hong Kong office in November. Most in the industry in Asia have watched its progress with idle curiosity rather than any sense of threat, but its latest appointment has raised a few eyebrows and made a clear statement that it does mean business.

In January Damian Chunilal was announced as CEO Asia for VTB Capital, based in the new Hong Kong office but with responsibility to accelerate the bank’s expansion in financial markets across Asia.

Hong Kong stalwarts know Chunilal from his time at Merrill Lynch. Regular Euromoney readers might recall our cover story on China rainmakers in April 2007; at that stage a preposterously young Chunilal, was the Pacific Rim head of investment banking, attempting to oversee a team of high profile and sometimes high maintenance bankers that included uber-rainmakers Margaret Ren (who he hired), Ehrfei Liu, Wilson Feng, and indestructible Asia investment banking head Sheldon Trainor. Chunilal spent 19 years at Merrill before leaving in November 2008 in the wake of the Bank of America takeover, subsequently suing the now-merged BAML over what he saw as an inadequate $2.3 million bonus – court papers show he’d been paid $11.7 million in 2007 and $13.9 million the year before.

In short, he was part of the fabric of US investment banking in Asia – both in role and in pay – which makes it interesting to see him fronting VTB in Asia. How do the two models compare?

“I think the issue is less a comparison of models but rather a comparison of our respective competitive positions,” explains Chunilal in written answers to Euromoney. But there is a comparison to be made. VTB Capital, founded only in 2008, has become the leading full service investment bank in Russia, he says. “The US bulge bracket firms developed internationally from a dominant position in the US,” he says. “Similarly VTB Capital will develop its international business from a dominant position in Russia.”

There are advantages to being a relative newcomer, he says. “In comparison to many other firms, VTB Capital has been far less impacted by the numerous legacy issues that are affecting many other investment banking firms,” he says. “This greatly strengthens our competitive position.”

How so? Chunilal argues that many businesses in Asia today are built on the wrong foundations and will be badly hit by volatile markets and damaged revenues. “The fact is that for many years, many firms in Asia have continued to pursue investment banking revenues without any regard for the sustainable profitability of those revenues on a properly costed basis. That is why so many firms in Asia will not be able to sustain their current business model in the new world order and will need to shrink their businesses in the new revenue and regulatory environment.”

The plan, Chunilal says, is to start by intermediating capital and trade flows between Russia, Central and Eastern Europe and Asia; one of several institutions trying to build on these increasingly robust flows between different regions of emerging markets. Next will come stronger trading and origination capabilities in the region, a regional client base, and access to local markets for international clients. There’s also scope, he says, to use the balance sheet selectively along the way. “We will be very systematic about how we do this in order to avoid the problems that many others are facing as a result of over-expansion.”

He confirms that headcount will increase and that “we want to attract top quality talent to our firm,” but how will compensation models stack up? Will they be comparable to a western investment bank? “Attracting and retaining top human capital is critical if we are to succeed,” he says. “We will pay competitively to do this.”

*

The other big move in Hong Kong at the start of the year was the departure of Jesse Bhattal, president and CEO of the wholesale division of Nomura. Bhattal will forever be seen as a Lehman Brothers man; he joined in 1993, became head of Asia investment banking in 1998 and by 2000 was CEO for Asia Pacific. He’s the man widely credited with negotiating the deal to put Lehman’s Asia operations into Nomura in the first place – including the near-legendary bonus guarantees that came with it – but there has always been something of a sense of a time limit in his involvement with the bank. His short-term replacement will be Japanese, the Nomura COO and wholesale chairman Takumi Shibata. Nomura says there will be a permanent replacement made and headhunters are already jostling to put candidates forward in what will be one of the year’s most high-profile appointments – if it’s an external one.