Recapitalization Revitalizes FX At Moscow Narodny Bank

The Russian government's decision to recapitalize the London-based Moscow Narodny Bank has breathed new life into the bank's foreign exchange trading operation. Moscow Narodny, once the former Soviet Union's overseas commercial bank and a significant player in the foreign exchange market, has severely scaled back its treasury activities since the disintegration of the USSR last year. According to treasurer John Richardson, Russia's £310 million purchase of the bank's preference shares has enabled the bank to resume serious market-making in spot forex.

"We've continued to operate through the whole of this period," says Richardson, who describes the past year's tribulations as "a pause for breath." But the bank reduced its formerly active market making in mark, cable, and sterling crosses as other banks cut lines and customers lost confidence. Richardson says the recap, plus what he describes as 1991's "good result"--the bank's profits remained roughly unchanged at £10.7 million before a £131 million provision that put it in the red--have begun to bring back both customers and interbank counterparties.

Now owned by the Russian central bank, Moscow Narodny will concentrate on reestablishing former relationships, says Richardson. The bank has a commercial customer base of western firms that trade with Russia, he explains. With its ten-dealer trading room, it focuses chiefly on spot transactions--it no longer makes markets in capital intensive forwards. When the ruble becomes convertible, Moscow Narodny will be involved in market making, says Richardson (see related article, this issue). The same will apply to other Eastern European currencies as they are floated, he says.