Two Russian banking giants want to make inroads in the global raw material business. How Switzerland is playing a major role in their plans.
The foundations have been laid: Sberbank and VTB both have subsidiaries based in the region of Zug, where they found a particularly tax-efficient business environment. The purpose of business at both subsidiary firms is the same: trading and financing of transactions in raw materials.
Sber Trading Swiss will start its operations in the third quarter, according to a report by «NZZ» (behind paywall). The bank, which is state-owned and the No. 1 in Russia, aims to become the leading trading firm in raw materials.
VTB, the country's No. 2, meanwhile is expanding its business in Zug to include not only the trading of metals but also wheat.
European Rivals Tend to Pull Out
The push by the Russian duo doesn't come as a surprise, profiting from the withdrawal of major players in the business. European banks, including Société Générale, Deutsche Bank and Barclays have already pulled out. American rivals such as Citigroup and Goldman Sachs as well as China's ICBC are still fighting over market share.
The Russian competitors want to get their share of the business and rely on a domestic market that is rich of raw materials. Also, trading is less heavily regulated than banking, opening for some regulatory arbitrage.
It is only logical, that Switzerland should play such a major role in the plans of the Russian giants, because the country is a major market in raw materials. The government estimates that some 500 companies are active in the business, with almost 10,000 members of staff.
New Attempts to Regulate the Business
The Swiss National Bank statistics has the income from the trading in raw materials above revenues from financial services in the banking industry since 2011 – that year, revenues from raw material trading reached some 20 billion Swiss francs ($21 billion).
Still, the business may be in for some tighter regulation. Swiss voters for instance will soon be voting on an initiative to make Swiss-based corporations responsible for their dealings abroad, which puts the raw materials business on the spot.
