By Rustam Botashev, Equity Analyst at UniCredit Securities
VTB is to present its new strategy today. Chief executive Andrei Kostin has already disclosed a few key points: the bank is to focus on more profitable retail and investment banking and targets a share price of RUB 0.15 by 2013, implying a 10% ruble return and around 21% US dollar loss since the bank’s IPO in 2007.
Our view: In its pre-IPO strategy in 2007, VTB also discussed its focus on retail banking, and we believe it has successfully implemented it. Its market share in retail lending grew from 5.9% to 10.2% from end-2007 to end-2009, while its share in retail deposits increased from 4.8% to 6.0%.
During the same period, retail loans on the bank’s books increased from 13% to 17%. However, this did not help VTB’s profitability (the bank had a USD loss in 2009), nor did it help its stock (a 58% decline in the GDR price since the IPO). In our opinion, the main reason for the drop in the bank’s shares is VTB’s low ROE (indeed negative ROE in 2009).
According to the new strategy, the bank aims to have an ROE of at least 15% by 2013, Vedomosti reports. We note that the bank has managed an ROE of above 15% only once, in 2007 and will be curious to learn what management plans to do differently to boost profitability, or what it believes it has failed to do correctly in the past.
The bank is to host a conference call tonight at 17:00 Moscow time (14:00 London, 9:00 New York). Herbert Moos, Chief Financial Officer and Deputy Chairman of the Management Board, and Ekaterina Petelina, Head of Strategy and Corporate Development Department of VTB and Member of the Management Board, are to host the call.
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