SPIEF 2012: Interview with Joerg Bongartz, Deutsche Bank

Amidst the meetings and speeches of this year’s SPIEF, Modern Russia caught up with Joerg Bongartz, Chairman of the Board Deutsche Bank Ltd. Bongartz discussed his participation in this year’s event and his take on the development of the Russian economy.

During the 2007-2008 financial crisis, Deutsche Bank chose not to downsize its presence in Russia and not to overhaul its Russian strategy. What are the reasons behind this decision?

Deutsche Bank has a long-term commitment to this country, last year we had our 130th anniversary of doing business in Russia. Over the last twenty years when we were more active, we went through some up and downs, and one thing was very clear for us all the time: we’re not scaling back significantly or withdrawing from the country, as others did in 1998 for example, or in other periods.

We have confidence in long-term opportunities here, and long-term growth and this requires that we are present here  also in difficult times. We were not completely unaffected, for instance we closed  proprietary trading work. As a whole we did not draw back significantly; in particular we kept the investment banking intact, because we thought we needed to cover our clients adequately. We wanted to have our specialists on board to consult our clients in a very difficult period of time and to prepare for the next year. And this is what happened.

Regarding commercial banking, we even had substantial business inflow in the first wave of the crisis and we are experiencing that again. In times of uncertainty, clients choose banks which they know well, which they find transparent and stable. This was an important development and helped us to generate quite some new business in commercial banking.

The Russian economy is currently dominated by oil and gas sales. In which sectors, beyond energy, do you see potential for growth?

I think one of the biggest impulses in the next five to ten years will come from the infrastructure sector. There is a huge amount of money that is required for infrastructure projects, worth, according to Deutsche Bank Research, about $330 billion in the next five years There are significant events like the Sochi Olympics, the 2018 FIFA World Cup and regional events like the APEC summit amongst other things. These individual events will require $77 billion investments in infrastructure. Just look at what is happening here in St. Petersburg with the construction at Pulkovo airport or Russia’s road infrastructure construction, where we are involved as well. This will require big investments and occupy a big part of the economy, while new jobs will be generated.As we have seen in other parts in the world, substantial growth will occur.

Another area is the automotive sector. This is already a successful sector if you consider the number of foreign investors who have entered that area. Look at what happened in Kaluga with Volkswagen first investing and developing a whole conglomerate of activities around its initial investment. This is already exceeding the workforce that Kaluga itself can provide by far. These are the two I would mention first, but there will be many more. The economy is going to grow, it will also be supported by private consumption.

Moscow is trying to become an international financial center. What does Moscow need to achieve this and will Deutsche Bank have a role in this project?

We have numerous roles actually. We are, for example, participants on the advisory council for the Moscow International Financial Center and there are various working groups where our specialists are contributing. Furthermore we are active in other advisory bodies that have an impact on the financial center – FIAC for example.  There, I am running the banking committee and we have produced a number of suggestions which have already been acted upon while others are now on the agenda and will hopefully materialize in a year’s time, helping to improve the overall investment environment there.

With regard to the financial center, the most important thing is how quickly you get there. Since this project was put in place a couple of years ago, a number of very important legislative and infrastructural changes have occurred, such as the merger of RTS and Micex, with a lot more to come. The focus has been mainly on the securities markets in the first instance, which is good, but now things are moving to a wider stage with the establishment of an adequate modern payment system.We have just set up a national payment council which is completely independent from the Moscow International Financial Center’s development project, but is still extremely important in order for Russia and Moscow to fit into the global payment universe.

I feel that there is much better coordination now, with much better synchronization between the various working groups and committees while there is a consensus between the government and regulators on what needs to be achieved. The various groups we are in are all basically on the same page. Sometimes there is a disagreement on certain aspects or details but the overall trend is very clear and there’s an overall understanding which is very positive I think.

Would you like to share your impressions of the keynote speech given by President Putin at SPIEF?

Well I think the most important point for investors is continuity; we have always seen areas that are difficult, which are hurdles for investment. The president addressed many of those and it seems to me there is clear determination to continue with the current way of handling matters, as it was before the elections. One very positive aspect which was also mentioned in our FIAC meeting this morning was the positive impact of the ombudsman for foreign investors, a role which Igor Shuvalov had maintained. I think the creation and implementation of an ombudsman for the wider business is encouraging and clearly something that was needed. In a nutshell, I think the speech met investors’ expectations.