Citigroup Tries the Borscht

Like every other market in the world (it seems), Russia's is mired in a deep red funk these days.

Over the last month, the country's RTS Index has fallen a mind-numbing 23%, from its May 9th all-time high of 1,765 to the 1,361, where it sits as of this writing. So it appears the cartoonists are right: Bears do walk the streets of Moscow -- today, at least.

The stunning drop in the Russian stock market certainly bodes ill for the nation's economy, and both corporate and individual investors are fleeing the country in droves, right? Wrong. On the contrary, last week, financial heavyweight Citigroup (NYSE: C  ) made a series of bullish pronouncements on the country, ending with the announcement that the bank intends to double the number of retail branches it's operating on the ground.

According to the Citigroup executive responsible for the region, the U.S. bank will open as many as 40 branches in Russia this year. The bank's plans lend a strong vote of confidence in Russia's long-term potential to drive the company's growth and echo the decisions of America'sGE (NYSE: GE  ) , France's Societe Generale, and Italy's Banca Intesa, each of which has bought a local Russian bank to get a foothold in the country in the last couple of years.

Interestingly, the very interest these lesser banking players have expressed in Russia seems to be driving Citigroup's move to expand its Russian presence organically rather than by simply buying up other banks' branches. Explaining its decision, Citigroup opined that Russian banking assets are "In general . very expensive." But you have to wonder -- if the RTS sell-off continues, Citigroup might rethink its plans and decide to grow through an acquisition or two as well.

Citigroup's sell-side
For now, while Citigroup is less than eager to buy assets itself, it has no compunction about helping to sell them to others. In addition to its retail expansion plans, the bank said last week that its share of the Russian brokerage market has reached 6%, and the company continues to work to expand that share. Citigroup believes there will be "a tremendous amount of equity [$20 billion to $25 billion] floated in Russia in the next two or three years."

No sooner than that statement came out, Russia backed it up by announcing terms for the IPO of state-owned oil major Rosneft. Asking price: $10 billion for a 10% float. Now that's my kind of a bear market.

Read more about Russia's new banking players in:

Interested in international investing? Check outThe Motley Fool International Report: Around the World in 80 Minutes.

Fool contributor Rich Smith does not own shares of any company named above.


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