Herman Gref

'Privatization Would Make Russia More Efficient'

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A woman walks past the state-run Sberbank headquarters in downtown Moscow, Russia.
  • Why it matters

    Why it matters

    Russia’s largest bank and the fourth-largest bank in Europe has fared relatively well in the financial crisis. CEO Herman Gref says Western sanctions hurt the bank at first, but that it has since adapted.

  • Facts

    Facts

    • The terrorist attacks in Paris and Egypt have brought Russia and the West closer together.
    • Rumors that Sberbank was being disconnected from international financial markets prompted its customers to withdraw €19.4 billion from their accounts.
    • Mr. Gref argues that Russia needs a more modern system of governance.
  • Audio

    Audio

  • Pdf

The 25th floor of the Sberbank Tower offers a gloomy view on a foggy day over Moscow City, the banking district of Moscow. The buildings housing the competition are hardly visible from the top floor, symbolic since Russia’s largest bank is in decent shape while the competition is licking its wounds, half-hidden in the mist. The Russian central bank owns 50 percent plus one share of Sberbank. It is the largest bank in Eastern Europe and the fourth largest in all of Europe.

In the bank’s library room we meet with CEO Herman Gref. Born in 1964 into a family of ethnic Germans living in what is now Kazakhstan, Mr. Gref is considered Russia’s most outspoken business executive. And he can afford to express critical opinions; Sberbank, which he has headed since November 2007, is still profitable today. A lawyer by profession, he has known President Vladimir Putin since the 1990s, when the two men lived in St. Petersburg. Mr. Gref later authored President Putin’s economic program, and he was the country’s economy minister from 2000 to 2007.

“The crisis between Russia and the West is the result of a lack of dialogue and empathy. It's good for everyone if we pay better attention to each other now.”

Herman Gref, CEO of Sberbank

Handelsblatt: Mr. Gref, what do the terrorist attacks in Paris mean for you and your bank?

Mr. Gref: This act of terror transports us into a new and very negative reality. An entirely new climate has taken shape, and it has a palpable psychological impact. It affects at least 50 percent of the economy. If parallel attacks in multiple locations are possible in Paris – a city already on heightened alert following earlier attacks – they are possible everywhere. This feeling of powerlessness is shocking. We have significantly increased our security measures.

These horrific attacks have brought Russia and the West closer together again. Do you hope that this will spell an end to the sanctions on Russia?

It’s a good thing that our relations are improving, after two acts of terror (the downing of a Russian airliner in Egypt and the attacks in Paris). But it’s a shame that attacks like these were needed to improve our coordination with the West. The crisis between Russia and the West is the result of a lack of dialogue and empathy. It’s good for everyone if we pay better attention to each other now.

But do you hope that the sanctions will now come to an end?

Of course, and the faster, the better. And once the sanctions are over, we will expand heavily in Europe once again. We have the advantage of having modern banking technology and superior products in the area of digital banking.

How strongly do the sanctions affect your business?

It was difficult at first, and we panicked. Last December, millions of text messages were sent from somewhere, saying that Sberbank was being disconnected from international financial markets and that accounts were being frozen. This prompted our customers to withdraw 1.3 trillion rubles (€19.4 billion, or $20.6 billion) from their accounts. It was a nightmare. We had to borrow money overnight, at 30 percent interest. But we adapted. We have now weathered the worst, and the situation has normalized completely.

But how do the sanctions affect your international business, including Sberbank’s business in Germany?

We have suspended our ambitious plans to continue expanding in Europe, we are no longer investing and we are rethinking our involvement in the European Union. We are working very closely with Asian partners. Now we are borrowing money primarily in China, though not as much as we would like to. We borrow yuan, which we exchange into rubles, dollars and euros. And if the sanctions continue, we will have no alternative to China. The sanctions are not the main problem, however, but rather the sharp decline in the price of oil and the many problems that have accumulated in our economy. The biggest problem is the lack of reforms.

What needs to be addressed most urgently?

We need a modern system of governance. As long as the country is run the way it’s being run now, we are unable to implement complex reforms.

So Russia is too centralized?

Our management system is a mix of remnants of the Soviet Union, the turmoil of the 1990s and something that began in 2000…

…the beginning of the Putin era.

A modern system of efficient governance has not developed yet. It doesn’t exist in Germany or France, either, but they are significantly further along than Russia, and yet still a long way from countries like Sweden, Finland, Singapore and New Zealand. We have too much government in some areas, while the government is hardly present in others, and our civil servants lack the kinds of modern managerial qualities needed to run large systems. The government is too heavily involved in the economy, where privatization would make our country much more efficient.

Including the financial sector, which the government dominates?

Yes, in the banking sector, as well. Fifty percent minus one share of Sberbank shares are currently publicly traded. Another 25 percent could be traded on the market immediately. And the central bank would continue to hold 25 percent in a transitional period. In principle, there is no reason not to privatize Sberbank completely. It would greatly improve our situation.

How so?

The central bank has been our principal shareholder until now, and it has an entire department dedicated to supervising Sberbank. Central bank representatives are on all of our boards. The central bank will also continue to fully control us once it is no longer our shareholder, because it is the regulatory authority. Private shareholders – in our case, the largest investment funds – could supervise management more effectively, from the standpoint of developing the banking business.

You are critical of poor qualifications among government officials, so why don’t you become a member of the government once again?

No, I’ve had enough of that. Everyone has his own life plan, and I don’t see myself as a civil servant or politician. I was in public service for 15 years, and I am very grateful to Vladimir Putin for allowing me to leave the government after eight years. I felt that it was extremely overwhelming to push through reforms in parliament without having a majority. I gave so many years of my life and so much energy that I no longer want to do it. However, I am willing to apply my experience in providing advice.

Is the banking crisis in Russia over, as many claim?

If one in five banks was shut down within two years, isn’t that a crisis? If you remove Sberbank’s profits from the equation, the entire banking sector is in the red. And the government spent a trillion rubles (€15 billion) on bank bailouts. We were in a veritable crisis, but the most critical phase is over.

How is your balance sheet doing?

Profits will be down by 25 to 30 percent this year. But to be honest, we weren’t even expecting a profit anymore at a certain time. However, we will certainly be more profitable in 2016 than today.

Banks in the West are calling for an end to regulation. How do you feel about that?

This also affects us, through our subsidiaries in Europe. Regulators are going too far in the E.U. There are more and more regulations, laws and unending compliance ordinances, and a constant stream of new capital requirements. This is now making it extremely difficult to make money as a bank these days. We also face more and more new competitors: new financial service providers like Apple Pay, and thousands of startups that are not regulated at all. All of this at once creates too much stress, something even a healthy body can’t handle. European banks ought to be investing in new technologies. They lag behind in that respect, but they don’t have enough money to invest.

Mr. Gref, as an ethnic German who grew up in the Soviet Union, are you disappointed by Germany and its behavior toward Russia?

I was disappointed that the E.U. didn’t hear us when Russia expressed criticism of the plan for an E.U.-Ukraine association agreement. That was when many problems began. You can’t run a company or make policy when you don’t listen to your partners. It was a lesson for everyone. I don’t even want to assess who’s right here. Both sides bear some of the blame in every conflict, and everyone is to blame in the Ukraine conflict. But Russia isn’t simply one of the European countries. It will take decades to get there, after everything our country has been through. It would have been a good idea to listen a little more, and to have more time, understanding and patience.

But how can we emerge from this crisis?

There is a good saying: The wiser head or the older brother gives in. In the Ukraine conflict, that’s Russia. In the conflict between the E.U. and Russia, it’s Europe. I’m just disappointed that a crisis like this happened in the first place. Russia can’t be threatened. You need to talk to Russia and negotiate with it, and that’s certainly possible. Putting a noose around each other’s necks is very dangerous. No one knows where this can lead. But I believe everything will work out in the end. It has to.

So Russia will not turn away from Europe and toward China?

No. Russia and Europe will find a compromise. No one needs the current conflict. Russia has been a European country for centuries. And I don’t believe in a third way. Russia has a European path.

Mr. Gref, thank you for this interview.

 

Mathias Brüggmann is the head of Handelsblatt’s foreign affairs desk, leading the coverage of the Ukraine crisis. He conducted this interview together with journalists from Les Echos and Neuen Zürcher Zeitung in Moscow. To contact him: brueggmann@handelsblatt.com.

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