The FINANCIAL — Despite the tense internal political and financial situation in Georgia, share prices of Bank of Georgia, the country’s largest commercial bank, have increased by 150% over the last two weeks. According to Nick Piazza, CEO of Galt & Taggart Securities, the company managed to provide proper information to shareholders on the issues connected with market conditions in Georgia and this became key to showing good results.
Established in 2000 Galt & Taggart Securities is wholly-owned subsidiary of Bank of Georgia. It’s one of the leading investment banks in Georgia, Ukraine, Belorussia, Azerbaijan, Moldova and Uzbekistan.
The CEO of Galt & Taggart Securities says that turnover this year is going to be substantially larger than last year and adds that the company’s operations will be successful in 2009.
“In the first quarter of this year compared to last year’s our business model has totally changed. We focused more on generating cash through transactions rather than building a large book of securities and trading off. We don’t feel that the market is stable enough for us to take such risks. Consequently we’re doing much more risk free transactions,” Nick Piazza told The FINANCIAL.
“We had a downward year in 2008 due to which we shifted the management team. The first quarter was very positive. I won’t give specific numbers, but I can say that we had very sound revenue figures. I expect 2009 to continue to be successful,” Nick Piazza adds.
Nick was appointed CEO in December 2008. Prior to that, Nick acted as Head of Sales at Galt & Taggart Securities and was tasked with helping boost the company's trading volumes with international accounts and increasing market share and turnover. Prior to joining Galt & Taggart, Mr. Piazza worked as Director of Corporate Relations at Concorde Capital, coordinating several different departments in the company including sales, research and corporate finance. Before that he worked for Interfax in Moscow. He received his BA degree from the University at Lake Forest College in Chicago (Illinois).
Q. Today different experts, businesses and government representatives are talking about the threats that current political events are having on the investor mood in Georgia. How severe do you regard today’s political situation in Georgia?
A. First of all I would say that things have been very peaceful and well organized so far. Perceived threats were probably bigger than what we’ve seen thus far. Hopefully if we continue this way, I think that dialogue will be the most constructive way forward. Right now with the crisis going on investors don’t want to see political instability. They have plenty of other problems to deal with, so this is going to be like raising a red flag.
Another thing that should be understood well is Georgia’s position. It’s a small country, which has done a very good job in terms of legislation, but for investors this is a very small part of their portfolio. They are looking at the whole former Soviet Union and somehow Georgia’s internal political problems could be a case not worth examining deeply. Just by having a lot of headlines, even though nothing happens, this could be a turn off for people who would otherwise be willing to look at investing in Georgia.
I’ve lived in Russia for 5 years, Ukraine for 4 years, I’ve been back and forth to Georgia for 4 years and for me it’s a mystery why people are so worked up about all this.
To a certain extent political reform and legal reform have been so successful here that Georgia might even be a little bit spoiled. You can’t even compare opening a business in Georgia to Moscow or Kiev. Here, you can do that in 3 days. We’re talking about a country that is near the top 10 for ease of doing business. To a person who has been in Ukraine and Russia, it’s pretty clear that corruption in Georgia is much less on a man or street level. I’m not claiming that there’s no corruption at all, however for ordinary people it’s not particularly relevant or present.
Q. Who are the potential investors you’ve been working with in Georgia, and how are they reacting to ongoing political developments?
A. There are several key investors that are doing business in Georgia in a long-term perspective. Firebird which is one of the cornerstone investors in Bank of Georgia is working on 3 new projects. East Capital which is actively involved in investing in the agriculture sector is also in the list.
Q. The ratings of leading Georgian banks were recently downgraded by international rating agencies. How does your company estimate the overall banking environment in Georgia?
A. The downgrade was due to more of a global factor. In terms of saying there was specifically something wrong with the banking system in Georgia, it would be wrong.
The downgrading was seen in Russia, Kazakhstan, Ukraine and just by being in the area the same happened to Georgian banks. When the international foreign investments came to Georgia after the Russian invasion, the banking system proved its reliability. It is highly capitalized and thus Georgian banks are in a more favourable situation then banks in Ukraine, Russia or Kazakhstan, which evidently have been undercapitalized.
Q. What was the initial result of these events on Galt & Taggart Securities?
A. We’ve definitely seen a business change. Up till now we were focusing more on equities. I think that business has slowed down a little bit. We are doing less equity transactions as people are more interested in fixed income. Given the current market conditions we’re trying to be more on the safe side this year.
Galt & Taggart Securities has been the undisputed leader on the Georgian stock market over the past five years. Last year Galt & Taggart Securities established itself among the Top-5 brokers in Ukraine.
Q. What are the current major threats for investors in Ukraine?
A. The financial crisis covers a lot of issues, but I guess we need to see IMF money continue to come into Ukraine. Also we need to make sure that the Hryvnia (UAH) remains stable because nobody wants to buy devaluated currency.
So I think that through summer, we’ll be seeing more and more interest coming from investors. In the last month we finished among the top 3 or 4 in terms of trading activities. Accordingly it’s been a really good chance for us to grab more market share, especially in Ukraine.
Q. A month ago you said a second, new wave of the banking crisis is hitting Ukraine. “We're heading towards another downturn.” How has the situation developed?
A. Things are better than I thought in Ukraine. The Government has done a better job than many people expected. We’ve seen around 8 banks asking the Government to step in and recapitalize by buying stake. Smaller banks are toppling over and larger banks with foreign parents seem to be hanging in there. The overall picture is that 2009 is going to be a tough year for everybody in Ukraine.
Q. What was the turnover of Galt & Taggart Securities in Ukraine in 2008 compared to 2007?
A. In the first quarter of this year compared to last year’s our business model has totally changed. We focused more on generating cash through transactions rather than building a large book of securities and trading off. We don’t feel that the market is stable enough for us to take such risks. Consequently we’re doing much more risk free transactions. Turnover comes from risk free cross rating transactions that we’re doing now, whereas last year we were buying shares, holding onto the book and waiting for the prices to go up. So our turnover this year is going to be substantially larger than last year.
Q. In 2008 the share prices of Bank of Georgia started to decline. It happened in April, much before the war. What could this decline be attributed to?
A. The spring of 2008 was the beginning of the banking crisis. Everyone was spooked; they didn’t know which banks had problems. In the Ukrainian market banking stocks went down by 60-70% over a two week period. It was a market panic and then again by being in the neighbourhood Georgia was thrown into it.
Galt & Taggart Securities solidified its leading position on the Belarusian market, taking the top spot on the Belarusian Currency and Stock Exchange (BSCE) by trading volume in January 2009.
According to IMF one of the most important measures planned by the Government of Belorussia includes reduction of purpose-oriented crediting, reaching balanced budget and careful policy in the sphere of wages in the state-run sector. The authorities of Belarus also plan to analyze the social safety net in cooperation with the World Bank, so that the most vulnerable groups would be defended from the recession and aftermaths of the utility rates increase.
The Government has cancelled its right to a golden share in state-owned companies, as well as the ban on trading shares acquired on preferential terms or in exchange for “Property” checks.
Q. How important do you regard the steps of the Belarusian Government to liberalize the local trading environment and how attractive is the Belarusian capital market for Galt & Taggart Securities?
A. Belorussia is taking its first steps in developing the market that Georgia, Ukraine and Russia have today. But I would say they’re still lacking a plan for what they want to do with the stock market.
If we talk about the summer and fall of 2008, we did several transactions for international investors looking to buy into the banking sector in Belorussia. At that time Belorussia was a brand new thing, with a bigger risk appetite. It was the next step on the frontier for investors and everyone was extremely interested in the market there. As for Galt & Taggart Securities, we were doing a good job in Belorussia.
I wouldn’t say we were incredibly aggressive. This year probably is not going to be the year when we’ll see a lot of investors coming to Belorussia mainly because of financial problems worldwide.
Q. What are your plans for expanding in Belorussia in 2009-2010?
A. Everybody’s goals have been readjusted thanks to the crisis, but I don’t think Galt & Taggart Securities ever had the intention for a massive role out in Belorussia. There, it is a different form of government in terms of the financial market dealing approach. That’s going to take some time, but I’m always happy to be on the ground floor of something, as it gives a lot of room to build up.
Q. You recently recommended investors to put their money in the agriculture sector in Georgia as the country has a good history in agribusiness development, and the market has a great opportunity for growth. You also mentioned that the banking sector has yet to develop in Georgia. In which directions do you see the Georgian banking sector developing in the next 2 years?
A. The Georgian banking sector is like the shining star of the CIS banking markets. Thanks to proper legislation and oversight the banks have developed in the right way. Bank of Georgia has just received funding from the IFC and a couple of days ago TBC Bank received a similar financial package. This is going to get banks through the financial crisis very comfortably.
It’ll be really one of the first rebounds from the crisis. In Ukraine we’ll probably see 248 banks turn into at least half of that number and there’s going to be a lot of reorganization. They don’t have the right legislation and are not quick about changing it, so things will move really slowly. Therefore Ukraine is forecasted to recover from the crisis more slowly than Georgia.
Q. Don’t you think that investing in agriculture in Georgia is quite risky due to the lack of quality control mechanisms in Georgia?
A. It comes from Georgia’s point of view, but if we look at it from how it is in Ukraine we’ll see that state inspection is a mechanism for corruption. So what did they decide to do here was that if products come from the EU, USA or countries that have international standards, then we will accept that. I think this was a good way to circumvent having problems.
In terms of internal food production and quality levels, there’s a romantic idea of an individual farmer who brings the highest quality products to the market. In fact that’s not the case. When you have a well formed farming business with a clear strategy, then you’re able to put money in weeding processes to increase the quality of your harvest. The reason why it’s so hit and miss in Georgia is that you have hundreds of small farmers and no big farming organizations like there are in Ukraine.
I’ve been holding negotiations with a couple of funds in New York. Several of them are coming in spring and summer to look at the potential of Georgian agriculture.
Generally speaking more and more companies are thinking about putting money in agriculture because of its attractiveness.
I was meeting a company from Ukrainian Agricultural Holding two weeks ago, which is looking very seriously at coming here. There are two reasons for it: one the agricultural point of view and second the legislative side.
They said that in Ukraine that they are competing with a bunch of other large farming businesses and so the Georgian market is very attractive for them due to a lack of big competitors.
Q. Are investors ready to put huge amounts in the sector agriculture sector in Georgia, which has a long way still to develop?
A. That’s a two sided question, as there’s a Georgian and global perspective. What we’ve seen at the end of this full run that we had over the last 5 years was countries like China switching to a more meat diet. That naturally requires more farmland. For the first time over the last years we saw shortages of food in 2007. Therefore agriculture sectors in countries that can grow their own food will become more beneficial for investors.
Now, how that connects to Georgia is going back to the legislation. The Government has two programmes to help people advance in agriculture, which are very attractive.
For me it’s super attractive and I think we’re going to see more and more people coming here. Most of the food products are imported. Why should that be the case, when Georgia has the right climate and a history of agricultural production? All it needs is investment and the foundations have been laid by the Government.
Q. Galt & Taggart Securities offers Equity and Fixed Income Brokerage, Research, Investment Banking and Management. From these services which is the most profitable for Galt & Taggart Securities at the moment?
A. Brokerage remains the most profitable from our services. It’s kind of bread and butter for us, since everything else grows round it. We are very lucky to have a strong client base. This is one of the biggest institutions in the world. All this can be attributed to the fact that Bank of Georgia has a very strong and diverse institutional investor base.
Certainly it’s not going to be a record year of revenues for any industry. But Galt & Taggart Securities is going to be successful in 2009, as we have the right people in place. Galt & Taggart Securities has many plans for bringing new products to the Georgian, Ukrainian and to a certain extent Byelorussian markets. There’s a new research team which is very strong and more of us are taking an active approach to bringing investors back to this market.
Written By Levan Lomtadze
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