MDM Bank valued at $3.5 bln and growing

By Dmitry Sergeyev and Robin Paxton

MOSCOW (Reuters) - Russia's MDM Bank is worth $3.5 billion and would favor a private share placement to an initial public offering as it targets growth in the next five years, its chairman told the Reuters Russia Investment Summit on Tuesday.

Oleg Vyugin, who previously headed Russia's financial markets watchdog, said foreign capital would stream into the Russian banking sector and private banks would merge after an initial period of development dominated by state banks.

"The banking sector's evolution, at first, will see the role of state banks strengthen. But afterwards their role will diminish quickly as other shareholders emerge or privatizations take place," Vyugin said.

"There will be foreign capital moving into Russian banks. Non-state Russian banks will be consolidated, and there will be a reduction in the number of these banks," he said.

MDM, one of Russia's top 10 banks, is controlled by businessman Sergei Popov. Vyugin, a former deputy finance minister, said he was in talks with Popov for six months before accepting his new post as chairman in May this year.

He said MDM aimed to grow in the areas of corporate finance, investment banking, retail banking, small business services and managing private banking assets.

"For us it's important that the bank grows not only from the point of view of assets and liabilities, but that it has a good, diversified business. Only such a bank can he valued highly, because a one-dimensional bank is valued at much less."

IPO? LAST RESORT

MDM's main shareholder has not charged his management with putting the bank up for sale. Thus an initial public offering would be the last resort used to raise capital, Vyugin said.

"We haven't yet looked at an initial public offering. An IPO in 2009 is unlikely," he said.

"If the bank starts to grow very quickly and, from the point of view of liabilities and assets, we face a shortage of capital, then we'll quickly take a decision -- either an IPO or a private placement," he said.

"The latter option isn't bad: a private bank is more flexible in reacting to a situation, capital can be increased, and it's possible to move on."

Vyugin said Russia was well prepared to withstand a global liquidity crunch that originated in the U.S. subprime mortgage market and has led to a sell-off in equities and a decline in major world indexes in recent months.

"There has been substantial capital inflow into the country. As a result, the financial sector has become more developed and stable," he said.

He said the liquidity squeeze had restricted access for Russian companies to capital markets and would reduce the number of initial public share offerings in the short term.  Continued...