Goldman Sachs to Overhaul Russian Business Image

Russia, despite all of the improvements that have taken place since the collapse of communism, is not exactly considered an outstanding place to do business. Growing socio-political unrest, excessive government involvement in the markets, and an economic over-reliance on commodities--particularly oil--have caused international investors to be wary. On a broader scale, slowing growth and disappointing performances by all of the BRICS countries have led to deflated expectations for emerging markets in general. All of these financial and economic trends have been combined with an overwhelmingly negative perception of Russian international relations, especially Putin's continued support for Bashar-al-Assad's regime in the Syrian civil war, and the recent fiasco surrounding alleged CIA spy Ryan Fogle, who was outed by the Russian FSB (Федеральная служба безопасности Российской Федерации, successor to the KGB).

Image from Bloomberg.

Yet many Russians have continually insisted that perceptions of the Russian business environment do not reflect reality. German Gref, current head of Sberbank, Russia's largest bank, responded to a recent international business ranking that placed Russia behind Albania by stating, “We have to improve our image because we are really better than what people think of us.” (Video and full text of his comments available here in Russian; I have yet to translate all of it myself).

Enter Wall Street--more specifically, Goldman Sachs, arguably the leading American investment bank. Earlier this spring, it was announced that Goldman Sachs has been tasked with improving Russia's international business image. According to The Wild East, Goldman has been hired by a special working group formed by the Ministry for Economic Development, and composed of Sberbank, VTB, and, most importantly, the Russia Direct Investment Fund--headed by Kyrill Dmitriev, a former Goldman Sachs man.

The re-entry of Goldman Sachs into the Russian market is an important international move for the firm, considering they left Russia twice during the 1990s and only returned in 2006. While many Western firms have left Russia indefinitely due to the uncompetitive and government-dominated banking environment there, Goldman has been able to grow profits at its Moscow operation and remain an active player in the deal-making and advisory scene. Goldman Sachs assisted Russian giant VTB with its 2011 secondary debt placement of $5.2 billion, and has advised on the listing for Russia's national MICEX exchange.

One of the biggest challenges Goldman will face moving forward is how to help Russia in its efforts to improve its current credit rating of BBB, the second-lowest investment grade. Goldman certainly has the firepower and clout to make an impact, but it will have to contend not only with the specific challenges facing Russia's national economy, but also with the broader economic currents outlined above. Goldman has also already been attacked by some activist groups such as Human Rights Foundation, which has argued the bank shouldn't work for Russia due to the country's alleged human rights abuses. However, given Goldman's signature resilience and continued rebound following the 2007-2008 American financial crisis--and the current dearth of Western bulge-bracket finance in Russia--expanding its international involvement and deepening its presence in the "Wild East" of Russia might prove a very profitable move.

Image from Fox Business.