An exclusive interview with the owner and Chairman of the Supervisory Board of PJSC ENERGOBANK Anatoly Danilitskiy by Interfax-Ukraine What does your business day look like? Do you Work from home? - I do not work regularly in the office, if that’s what you mean. I meet with people, work with documents. I'm an investor, not a manager. I do business from home, I have everything needed for productive work. Right next to me is a gym, so I can combine work with fitness. When do the most interesting ideas strike? At what hour of the day? - It's hard to say. Sometimes at night, sometimes on the airplane, where I spend a lot of my time. The biggest challenge right now is the question of future development of ENERGOBANK. Could we please spend some time on this? - In short – the entire Ukrainian banking system is in a difficult situation. I should say, a critical period for most banks, as the future of many depends on how they will be able to cope with this period of turbulence. I.e. who will survive – even though a majority, will probably survive. Would the said majority be able to overcome the psychological boundary of ineffectiveness induced by old management methods in banking? We need a new business, a transformation not only in line with the requirements of the Ukrainian regulator, but also in line with the global requirements – that is the question. The question is whether bank executives and their shareholders can adapt to new realities, in particular, the European bank capital standards? Recapitalization is probably the main issue. Why do you need a bank in Ukraine? - To pursue a profitable banking business. In terms of benefits for the owner, the bank can be regarded both as a business and a tool. If you ask what my motivation as an owner is – I believe that every bank is created solely for the sake of profits and an increase of capitalization. And like every business, the bank requires liquidity for its development. For efficiency’s sake, it is necessary to combine the two models, as profitability of the banking business today is not what it used to be. It has always been a notch lower than in production and retail, while operational and market risks are several times higher. From the owner’s viewpoint, it is logical to refrain from considering a bank an independent unit. Rather, it should be viewed as a service-providing financial institution for another major business of the owner. How did you purchase ENERGOBANK? - This was the result of a division of assets between my partner and myself. By the way, I should like to emphasize that it was a real separation rather than a decoy, as some people might think, or want to make others believe. In the period from 2009to May 2012, when I resigned as Director of the National Reserve Corporation, Alexander Lebedev and I had come to the realization that it was time for us to part ways in a civilized manner. As a result of the “divorce,” to use this allegory of a marital relationship, we agreed on a certain scheme of property division. Among other assets, I got ENERGOBANK as I have always kind of wanted to try my hand in Ukraine, for me it was a challenge. Acting by the principle: “No risk – no gain,” I have risked a venture, even though I could’ve chosen a more relaxed environment. Apparently, this is because I'm half Ukrainian myself: my mother hails from the Zaporozhye region. She is a Cossack by nature. It is important on one hand, to be close to Europe and, on the other, not to forget about my own Ukrainian roots. Do you perceive ENERGOBANK as a separate business or did you purchase it to provide a service to some existing businesses in Ukraine? - I purchased an asset that, like many other banks in Ukraine, is going through a difficult time. One cannot claim this to be an ideal acquisition, but I wouldn’t call this a special situation or a distressed asset, , since it would have been pointless otherwise. So you cannot say that this is a bank solely for provision of services to a business group . I do not have a group as such, and to provide services to one or two companies at a loss would be plain silly for a bank. Likewise, keeping a bank afloat by forcing a separate company to work for it means moving money from one pocket to the other . So, what I really want is for this bank to become a self-sustainable business. Then how do you see it? - So far, I'm not talking about a change of strategy: it is still a universal bank, but its target audience is mostly medium businesses and individual upper class clients. This is, to an extent, a boutique bank, it is small in size, and the issue of increasing its market share is not on the agenda. Maybe we should not set such goals. We need to strengthen the role of the higher class segment that we are focusing on, and expand the range of products and services, which would suit the target audience of the bank: medium corporate business, even small businesses perhaps – that fit in the SME concept. While working with the SME segment, we plan to expand cooperation with international financial institutions. In parallel with the development of the SME direction, we will be working with important upper-sized clients as a second servicing bank with a set of unique flexible and mobile tools that active and energetic entrepreneurs need. Large banks are very bulky; they find it difficult to maneuver in the interest of the client. We can be a second bank for the people and companies that have the liquidity, a bank that is able to quickly and efficiently provide services in their best interests. It is like a family that has a status Mercedes or BMW 750, and at the same time has an alternative car along the lines of a Porsche or a Mini. I hope with time we will become the proverbial Porsche, given our ambitions in the Private Banking sector. In the meantime, we are just a Mini. ENERGOBANK is like the car in question: it allows customers to quickly get to where they need, while remaining a modern, fashionable and comfortable vehicle. It is very important to be comfortable, affordable and provide superior service to our customers. In this sense, we can be more efficient than a large bulky bank. Our overheads are lower while the quality of services rendered will be higher. We can’t exclude the fact, that the current banking environment will allow us to refashion business. For example? - It could be a combination between a commercial bank and a merchant bank. Practically, it would be investment banking. We might create a division of 10 to 15 specialists that will work with investment banking products. For example, to provide mezzanine finance to companies within their restructuring programs, their access to global capital markets, in the pre-IPO, partial IPO, SPO – we could provide such services. I do realize that one can be skeptical about this as most investment bankers tend to leave right now. However, as a form of IB, merchant banking has a right to exist, provided the approach is flexible enough. A creative approach means adapting to existing conditions. Do you already have potential clients? Are they Ukrainian companies? - This is another issue I am currently dealing with. Both as head of the financial-industrial group, and after my resignation, I took interest in the investment business. In the group, these activities have never stopped, counting NRB. It started, among other things, as an investment bank, and investment management was amongst its first set of services. The bank was mainly an investment institution that grew into a universal commercial bank. It was a private equity fund with a banking license, as the transactions in this business have generated most of the revenue. The acquisitions were a major stock package in Aeroflot, the shares of RAO UES... Plus, we bought shares of Gazprom that were cheap at the time, with the value of these securities eventually going up. It was our biggest strength, our key advantage point. But that was back in the 90's... - It was back in the 90's and early 2000's. Now the space for such massive transactions has narrowed, everything is over-regulated, the margin has shrunk, and funding has decreased to availability to mainly state institutions... It is difficult, but in general, I can tell you – the bankers are crying out loud because they have to fight for their margins. No matter where, Ukraine or Russia, we see the same problem: resources are expensive and the assets often leave much to be desired. We, in our bank, are currently dealing with the problems of bad debt – that is something that we have inherited from the previous management. Now we’re fighting hard to reduce our portfolio of non-performing loans. Of course, there are people who are unhappy with this turn of events. They are nervous, they publish all kinds of fairy tales and nonsense, trying to evade the consequences, but what they have borrowed – i.e. other people's money, they will have to return it. Responsibility is inevitable, so to say. How large is your problem portfolio? - Well, I will not be mentioning any figures – it’s all in the official reports, but we are improving the quality of the portfolio, we are constantly working on it. It is rumored that you are trying to sell some of the assets. You do not want to buy them and develop them as an investor in Ukraine? - Yes, we have such investment projects that have been transferred to the bank in order to satisfy the demands of creditors. My partners and I will work separately with such assets, as you cannot leave them on the bank's balance sheet. First, a non-performing business should be seized, restructured or rehabilitated, and then sold off to recover some funds, or, even better, to make a profit. The key aspect for me in the event of such a recovery is that the bank receives a maximal compensation for losses incurred. What business areas in Ukraine seem most attractive for you? - So far, I have been studying, keeping an eye on the various developments in the market. The situation in the country makes one want to “sit one out and observe.” And so we sit on the bleachers, watching and hoping for a flicker of light at the end of the tunnel. Political uncertainty is fading away, and we expect that the economy will start to recover too. I hope that Ukraine will be able to break out of the vicious cycle in which it is getting caught right now, while avoiding the fall into an abyss that looms somewhere nearby in Europe. So, where is it easier to do business today, after all - in Ukraine or Russia? - Well, for me, Russia is probably easier and more intuitive: the rules there have long been clearly outlined, and the people with whom I communicate are all the same. I, unfortunately, am not sufficiently acquainted with potential Ukrainian partners, but I hope to establish good relations. I am not engaged in politics in the same sense that some other business people are. As a citizen, of course, I take interest in it, and I have my own point of view on everything, but as an entrepreneur I am absolutely apolitical and distanced from all the centers of power and political forces. I maintain a cautious attitude and prudent access to any administrative resources. The main thing is to know the rules and the laws – and one has to know them well enough to apply in practice. Do you think one can build a successful business without administrative resources? Well, without any personal relationship with it, anyway? - It is OK to have a neutral relationship. On one hand, being a foreigner, I objectively cannot have access to any privileges. There is no difference between Crédit Agricole, OTP Bank or ENERGOBANK, but these banks have to be reckoned with simply by virtue and size. However, being foreign entities, they have no direct access to administrative resources. Like any investors, foreign shareholders act for the good of the state by creating jobs. I am an investor and I want my investments to work both for the benefit of the country and myself, the Ukrainians and myself, as a citizen of Russia and half-Ukrainian. I do not see any difference from an investor’s point of view: what's good for Russians is good for Ukrainians, and vice versa. Could you please name the minority shareholders and the share in the bank that they own? - The company ROYLANCE SERVICES LIMITED LLC owns 99.64 % of the stock, while less than a half percent is owned by small investors, about 40,000 in total. I certainly do not know them. Have you ever thought of rebranding the bank? ENERGOBANK is often associated with the energy industry. Did you have such thoughts? - There’s no harm with such associations. It’s all part of our history: our clients span many companies of the energy sector; some have been with the bank for two decades now. In recent years we have done a “face-lift” for the image of ENERGOBANK, with a beautiful modern head office and branches, and a nice combination of corporate colors. The bank began to look more European after the restyling; the combination of gray and yellow is actually reminiscent of Commerzbank and Raiffeisen Bank International... You are betting on the perception of the younger generation? - I will not say it is about “sex appeal,” but young people definitely like the design as it suggests a laconic and innovative image in the provision of banking services. For example, the design stresses that ENERGOBANK is a technologically-advanced company; and it actually is. We work very well with card products because providing such a comprehensive service is fashionable and comfortable these days. We are developing Internet banking, in the sense of remote access channels – as part of working with retail. Not in the mass-market sense of retail, because I would not venture into the riskier part of retail, and then again, it requires a lot of additional funds, something that is not always justified. This is a job for systemic banks. Many banks are trying to fill this segment now, but, you know, this is a double-edged sword. Therefore, some other companies attract us as a partner, for example as a ready-made quality agent network to work with retail credit products. We position ourselves as a bank for successful young people. Those are managers and entrepreneurs, who have succeeded as members of the business community and are confidently building their careers. These are people who are already standing at the crossing to middle class territory and actively trying to cross the threshold. What tasks did you set for the top management in 2013? - To survive through a difficult macroeconomic environment, and to promptly respond to opportunities that are opening up. Do you have faith in them? - I trust my management team, if I get your question. I believe that ENERGOBANK will become an effective asset of mine, and I rely on the professionalism of this bank’s leading team. Will you be helping the bank stay afloat? - Of course. In what quantities? - This is a question of tactics, it depends on the situation. We will find ways to support the Bank. At the same time, you can not flood the bank with money, the management should feel like a long-distance runner. Are there any plans to increase the capital? When, and how much? - Yes. We are definitely planning a further increase in capital of up to UAH 100 million on conditions of a subordinated loan. I think it will happen in the spring. We have, in principle, sufficient capital, in fact the problem of banks is not about capital “per se,” but about liquidity. In my case it's not a problem, as ENERGOBANK has sufficient liquidity. Tell me, which of the big banks is now providing credit? Lending operations are all on halt, how are we supposed to generate revenue? On commissions. - Well, we are trying to make money on that as well. We are developing the trade finance business, as well as other forms of transactions that do not require net liquidity, with quality organization of processes, so to speak, being more important. So, we hope to be able to weather the storm intact. How many clients of ENERGOBANK enjoy Private Banking services? Do you know these people? - I know some of the clients, the management of the bank knows everyone personally. They even know their spouses and children... We really work, where possible, as a Family Office with a full range of Private Banking services. Do you believe this is a potentially attractive trend? A lot of Swiss bankers come to Ukraine and invite clients to be serviced by their banks, and all major banks are developing wealth management services. How do you plan to compete with them? - Well, we can hardly compete with Swiss banks for the simple reason that we are not a Swiss bank. But we can complement their services with a set of measures and steps required by the customer today, even if one has chosen to use a major Swiss bank. Wealthy Ukrainians who keep their money in Swiss banks still need liquidity in Ukraine. Our bank can help these people make effective use of their funds in a most flexible manner. What’s your opinion of the NBU banking regulatory policies? Particularly in the recent year? - It's hard to judge. I can only say that I understand the difficulties that the regulator as a part of the state must be facing, and what it feels like to be under the pressure of deteriorating macroeconomic environment. I can only wish the regulators the best of luck. After the problems of Mr. Lebedev in Ukraine, you had the courage to come to this country. Do you think you will be able to tackle the same challenges differently? Or do you simply have a different view of them? - Well, Lebedev’s problems, apparently, are not business-related but are due to his political and public activities. I am not involved in these, so I do not see any connections between the public and political activities of my former partner and my own business efforts here. While some detractors try to link us somehow, including the media, using some phony “facts” and made-up stories, they have not really succeeded. I repeat: in this case, we have different goals as I came to Ukraine solely as a businessman. You can not suspect business people just because they are citizens of the Russian Federation. I know many successful citizens of the Russian Federation, who have good, successful and profitable businesses in Ukraine, who create jobs and pay taxes. During the division of the assets with Mr. Lebedev, how much was the Bank valued at? - According to the history of investments that have been made, the bank’s cost was over $ 50 million. And how much does it cost today? - It depends on how you approach valuation. I would rather refrain from assessing the bank, I can only estimate its value in the future, but today it is too early for that. . If you were to sell it – how much would you sell it for? - There is no businessman that would refrain from selling a business at a profit if the price is right. But, in this first interview as the owner of the bank I would rather not talk about selling it. Why not, since we will be read by potential investors who may want to enlarge their banking businesses? - To come here and to leave, by simply abandoning a new business behind is not for me! I'm not into garage sales, when you go to a market place trying to sell a property that you no longer need, trying to recover at least some money. Sell, close your trunk and take off. That is inadmissible in our situation. If we are ever going to go for a merger, we will only do that by joining forces with other bankers – that’s a maybe. Moreover, these could be my future co-investors, some potential partners from abroad. I am now actively engaged in the investment business in Europe and the U.S. I am the head of a public company whose shares are already trading on Nasdaq (CISAU). This, in practice, is a first such experience by a group of Russian businessmen: to raise funds for investment in Russia and the former Soviet Union using the mechanism of SPAC. What are you planning to purchase? - Profitable businesses only. Maybe be a part of a business. With the money that we have drawn - US $ 40 million – it is a small pool, but it is enough to buy a minority stake in a company, which, as a result of reverse merger transactions instantly becomes public and is traded on one of the U.S. stock exchanges. Its cost will multiply, simply via the arbitrage of the capital market mechanism. Those may be some good companies in Russia, Ukraine, or a Russian company with assets in Ukraine. What share would you want to acquire? Will it be 10%, 20% – can you give a ballpark figure? - From 10 to 25 percent. One does not have to acquire a majority stake. It depends on the company. Any priority business areas? - In a broad sense, it’s the consumer market. Would you expand on that? - So far, we are at the very beginning of the selection process of the candidate companies for mergers and acquisitions. Make a guess yourself: where there is good and sustainable growth and consumer demand – our target is there. Do you have role models amongst business people or bankers? - All successful and accomplished people, regardless of where they lived, in what countries. They have a lot to learn from. As a former Indologist, I can say that Mahatma Gandhi is an authority figure for me, the philosopher and spiritual leader of India, Jawaharlal Nehru, Indira Gandhi. Those are political and community leaders, while in the realm of business terms, not to delve deep in history, many contemporary figures are successful. I’d rather not name names: I am impressed by the entrepreneurs who know how to increase wealth, to create and build value added, while not sticking out and modestly staying in the shade. FOR REFERENCE: Anatoly Danilitskiy, the majority shareholder of the PJSC ENERGOBANK (the end beneficiary of ROYLANCE SERVICES LIMITED LLC, Cyprus, which owns 99.64 % of the stock). An entrepreneur and portfolio investor. Graduated from the Moscow State Institute of International Relations (University) of the Russia’s Ministry of Foreign Affairs (1974). Until 1993, worked in the foreign ministry holding various diplomatic posts in Russian embassies abroad. From 1993, he worked with the Russian billionaire politician and businessman Alexandr Lebedev as deputy and then first deputy chairman of the National Reserve Bank in the period from 1995 to 2004. From 2004 to 2009, headed the National Reserve Corporation (NRC), the holding company of Alexandr Lebedev. The source of funds for the purchase of the control in PJSC ENERGOBANK came from selling to the original shareholder of the Bank Alexander Lebedev the stakes in the member companies of the National Reserve Corporation (NRC), Russian Federation, for cash. Married with four daughters.