Research Notes

PromStroyBank (St. Petersburg) is a leading Russian federal bank of with a stable and diversified client base and high growth rates. The lending institution’s assets surged 53% in 2005 which is much higher than industry average growth rates. The major upside driver for the bank’s stock valuations is its integration with Vneshtorgbank (VTB), Russia’s second largest bank in terms of assets, with subsequent switch to a single share.

Thus, PSB minority shareholders will have the opportunity to become the first private owners of VTB stocks which are still not listed on the stock market, but should become the second blue chip in the banking sector after an IPO which is scheduled by the management for late 2006 or early 2007.

Preparation of legislative amendments and the announcement of the specific timeframe for an EGM (September 18) at VTB dispel much of the uncertainty over the plans to switch the company to a single share. However, despite official pledges by VTB to consolidate stocks before the IPO on favorable terms for PSB minority shareholders, many details of this process still remain vague, which adds uncertainty to the valuation of the investment appeal of PromStroyBank stocks.

We estimate the fair value of PSB common shares at $1.21 and assign a Hold recommendation to them.

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Olga Belenkaya

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