International banks with investment banking ambitions could regret cutting their retail operations in Russia

Foreign banks in Russia are cutting their retail operations and this is raising questions about their commitment to their investment banking presence on the ground as well.

HSBC, Europe's biggest bank, has exited retail banking in Russia and Poland as part of a sweeping pullback from retail markets against a backdrop of 30,000 job cuts worldwide.

Barclays is said to be close to selling its Russian retail and commercial banking business to Kazcommertzbank, Kazakhstan's biggest lender, and BNP Paribas has agreed to let Sberbank acquire a majority stake in its personal finance retail business Cetelem.

Nomura, which recently cut its Russia GDP growth forecast to 4.2%, has confirmed job cuts of 80-100 positions outside Europe (as well as 5% of staff in Europe) with cuts spread more or less evenly across investment banking operations. Societe Generale has announced cuts of 2,000 people - or 13% of the firm's workforce - aimed in part at increasing the profitability of its Russian business.

"Many banks with very ambitious growth plans in retail banking have put those plans on hold. But even more than the problems around the current global financial crisis, it remains true that that it is very expensive to create a comprehensive retail network coverage in Russia, especially when you have Sberbank - which is everywhere - as a competitor" says Gregory Camou, head of the Moscow office of international headhunters Pedersen & Partners.

However, banks which pull back from a retail or corporate coverage network could come to regret it. While international banks are pulling back, Russian banks are building up.

VTB's CEO Yury Soloviev was quoted in the Financial Times recently as saying that its competitors were fuming because the majority of them had pursued the wrong strategy - hoping to survive without a link-up to a commercial bank. Access to corporate clients he said, was everything.