Research Notes

In mid-September, the global financial crisis almost paralyzed activity in the Russian financial sector, and now, even with the active steps taken by the country’s monetary authorities, credit markets are still far from functioning normally. Given the ongoing global negative trends, Sberbank’s 1H 2008 financials and development strategy for the next 5 years, published in late October, need to be carefully considered.

Drivers:

• Government assistance. Sberbank, which is a structural element of the financial sector, is protected from emerging financial problems by government assistance, which has been confirmed by numerous statements made by high government officials about their readiness to support the largest state banks irrespective of the outcome of the present situation.
• Access to funding sources. In contrast to most of its rivals, Sberbank should not face a funding problem. The government is ready to deposit RUB 500 billion in Sberbank (10% of its liabilities), which, coupled with an expected customer inflow and the ongoing credit opportunities for first-class borrowers, will ensure stability of the bank’s funding structure.
• Increase in Sberbank’s market share. Given the sharp decrease in customer confidence in the Russian banking sector, Sberbank’s status as Russia’s No. 1 bank and the ongoing access to funding sources should help Sberbank boost its customer base, both in the retail and corporate sectors.

Amid the instability of the financial sector and the emergence of a whole number of additional risks for Sberbank shareholders, we downgrade out target prices as of late 2009 for both Sberbank commons and prefs to USD 3.31 and USD 1.17, respectively, and reiterate our Buy recommendation for both types of securities. In our view, the scale of deterioration of Sberbank market cap is quite unreasonable, while the current price level is a good opportunity for long-term investors.

Vladimir Sergievskiy

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