CFA RUSSIA QUARTERLY

ASSOCIATION

CFA Charter Awards Ceremony at Soho Rooms Club

CFA Mock Exam at Moscow State University

Presentation and webinar for students of the RPANEPA: how to become a CFA and where to start

Award for “Adherence to high standards of business ethics in the finance market”

Summer party at Don’t Tell Mama Club

RESEARCHESCFA Institute: changes in monetary policy are the main factor of concern

Situation in Russian banking system – opinions of market participants

PROJECTSCFA Association (Russia) participates in GIFA events

Debate Night: “Moscow human and intellectual potential: competitive advantage or illusion?”

Student Competition: CFA Institute Research Challenge

CONFERENCESInvesting into Central and Eastern Europe

European Investment Conference 2013: from cautious optimism up to forecasts of financial disaster

EDUCATIONMaster-class: business evaluation methods

Training: Financial Modeling of Investment Projects

Course: How to detect financial statement manipulations?

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Moscow, one of the greatest cities in the world, has untold potential for growth...ALAN MEDER

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AssociAtion

The Charter Awards Ceremony took place at Soho Rooms Club on the 16th December, and honored 94 new CFA certificate owners.

cFA cHARtER AWARD cEREMonY At soHo RooMs club

Over the past four years, many investment profes-sionals have joined CFA Association Russia:

2010

2011

2012

2013

72

80

82

94

Years Number of new members

On December 16, 2013, long-awaited CFA charters were awarded to new charter holders by by Vladimir Pota-pov, CEO of “VTB Capital — Investment Management”. Vladimir Potapov, who is a chartered financial analyst himself, heartily congratulated the heroes of the evening with a well-deserved end of their difficult but very important journey of becoming true professionals in the finance industry. On behalf of the CFA community, new charter holders were greeted by Vladimir Tutkevich, executive director of CFA Association (Russia).

For every new charter holder, this jour-ney has taken from 3 to 6 years. Accord-ing to other analysts, CFA preparation gave them an opportunity to gain new knowledge and skills as well as to sys-

tematize effectively what they had already known. Moreover, from now on

all newly certified CFA holders, being high-level professionals, can apply for prestigious jobs in the best financial structures in the world and look to the future with confidence, regardless of their circumstances.

After the official ceremony, the evening continued in the atmosphere of infor-mal communication with colleagues. It seems that some new holders of the “sacred” certificate have already made a decision about a further step in their promising career.

CFA Charter inspires confidence with regard to future career

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cFA Mock ExAM At MoscoW stAtE univERsitYOn November 23rd CFA Association (Russia), in coopera-tion with Kaplan Schweser, held the CFA Mock Exam in the main building of Faculty of Economics of MSU.

Because we normally observe a small number of registrations for our Autumn CFA Mock Exam session, only 90 CFA candidates registered for the Mock Exam. However, smaller number of participants does not mean a relaxed and easygoing atmosphere in the exam room; our staff members performed the roles of exam proctors and ensured that the Mock Exam followed the official exam protocols. Every participant had an allocated seat in the examination hall, the timing and schedule was fol-lowed very thoroughly, and candidates were unable to check exam questions before the exam session started.

Both sessions of this year's Mock Exam were organized with support of the Centre of Applied Financial Research, Faculty of Economics of the Moscow State University,

which provided CFA candidates with comfortable and easily accessible facili-ties for the Mock Exam.

We wish good luck to all candidates who took the CFA Exam and welcome everyone to join our young and ambitious community of finance and investment professionals.

Mock ExAM bEnEFitsOne of the main differences between mock and actual exams is that Kaplan Schweser provides every candidate with Answer Keys for self-grading as well as with access to Kaplan online services. This gives the participants of the Mock Exam the fol-lowing benefits:

Individual exam score;

Complete answer explanations;

Ability to compare Individual scores with the scores of other candidates;

Learning Outcome Statement reference guide based on the CFA Institute and Schweser-Notes™ texts.

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On October 15th, 2013 CFA Association (Russia) held a webinar presentation on the advantages and the ways of undertaking the CFA exams in Russia.

PRESENTATION AND WEBINAR FOR STUDENTS OF RANEPA:

HoW to bEcoME A cFA AnD WHERE to stARt

Many students of the Finance Department of Russian Presidential Academy of Na-tional Economy and Public Administration (RANEPA)

are planning to become investment professionals and dream of being in a CFO/CIO, a risk manager or a portfolio manager career.

That is why CFA Association (Russia) and RANEPA - the MS in International Finance program, organized the presentation and Live Webcast on the topic: “How to pre-pare for the CFA exam in Russia, and what advantages it will bring”.

Vladimir Tutkevich, executive director of CFA Association (Russia) and Anton Shpuntov, CFA, investment professional with extensive experience, covered the following aspects:

Why is the CFA Charter considered as the "gold standard" for investment professionals?

How can a CFA Charter help advance your career?

How does one prepare for CFA exam in Russia?

CFA Association (Russia) thanks the Russian Presidential Academy of National Economy and Public Adminis-tration for taking the initiative to intro-duce the CFA program to its students.

Future investment and finance professionals expressing interest in the CFA Program

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AWARD FoR

“ADHEREncE to HigH stAnDARDs oF businEss EtHics in tHE FinAncE MARkEt” On Tuesday, September 10, “Et Cetera” Theater held the official meeting dedicated to the Day of the Financier, supported by the Finance Ministry.

The best financial professionals who made a significant contribution into the development of our country were hon-ored with the “Reputation of the 2013 year” Award.

According to CFA Association, the winner of the nomination “Adher-ence to high standards of business ethics in the finance market” has been Mr. Richard Hainsworth, CFA, CEO of Universal Credit Rat-ing Group in Hong Kong, and CFA Association Member of Board of Directors.

The “Reputation of the 2013 Year” Award had an official support from the Minis-try of Finance of the Russian Federa-tion; in particularly from the Minister of Finances of the Russian Federation Anton Siluanov. At the ceremony there were over 500 famous and authoritative representatives of the Russian finance market, public figures, scientists, legal and government organizations.

2013 YEAR lAuREAtE

2013 year laureate, Richard Hainsworth, cFA.

Richard Hainsworth, 2013 year laureate, Bachelor of Chemical Technology Sciences (Imperial Col-lege London), Master of Economics (The Centre for Russian and East Euro-pean Studies University of Birmingham), has been liv-ing and working in Moscow since 1982 and has been studying Banking since 1992.

In 1996 he was appointed the representative of Thomson Bank Watch.

In 2001 Mr. Hainsworth opened his own National Rating Agency “RusRat-ing”, supported by Citibank, where he held the chair of Credit Risk Management Department Vice President. At the moment, Richard is CEO at Universal Credit Rating Group in Hong Kong.

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suMMER pARtY At Don’t tEll MAMA clubOn the 14th of August, CFA Association partnered with the BizFamily to hold the Summer party for CFA candidates and charter holders in one of Moscow’s trendiest clubs

The Chef at Don’t Tell Mama is the famous Argentinian Adrian Ketglas, who opened his first bar at the age of 18 and received Michelin Red Guide Start in 2005. He created more than just a menu for Don’t Tell Mama – he created a true piece of art, which took the CFA com-munity to an amazing gastronomical journey. The Bar is managed by British Beck Narzi, the graduate from United Kingdom Bar Academy.

More than 170 people visited that event and enjoyed the sophisticated cuisine and the interactive focus of the party. It was a great celebration for all those who took their CFA Level 3 exam – the results of which were disclosed on August 7.

Through the use of our innovative mobile application, everyone at the party was able to see all participants and could invite them to chat and exchange business cards.

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cFA institutE:

cHAngEs in MonEtARY policY ARE tHE MAin FActoR oF concERn A survey, conducted by the CFA Institute among organization's members, has shown that possible monetary policy changes are now the main factor of concern on the market.

of respondents think that the main issue centers around the phase-out of the monetary easing program. 35% of participants believe that this factor is, first and foremost, the economic slowdown in China. The third most popular response was growing bond yields (33% of respondents), which closely correlated with concerns about monetary policy. Respondents could choose several factors at once, and that is why the final sum exceeds 100%.

premium for the share capital risk for the nearest 12 months.

of respondents agreed that total managed assets volume using active strategies is not reasonable in terms of invest-ment performances. It seems that active investment man-agement loses its attractiveness.

predict “currency wars”, competitive currency depreciations by the countries.

of respondents believe that the main financial crisis les-son is unreliability of exceptional short-term planning. 25% more state that the main lesson to be learned had to do with those defects of financial markets regulation, which were indicated by crisis.

58%

60 %

38 %

31 %

4 -5%

REsEARcHEs

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We asked experts among local CFA charter holders to comment on this situation.

vyacheslav volkov CFA, Corporate Finance Director "Rosexpertiza"

“The banking sector is being influenced by the general poor economic climate.

Reduction of investment programs leads to a drop in demand for credit. Economic crisis manifestation negatively affects the margins of real sector companies, which leads to a reduction in their credit ratings and increases competition in the banking sector for high-quality borrowers.

However, despite the general eco-nomic slowdown and stagnation, the Russian banking system remains stable. Central Bank will continue tightening the work with problematic banks. Probably, we will see a few more license revocations regarding banks outside the top twenty. Nev-ertheless, scenario of mass license revocation is unlikely to happen in the very near future — such a step would shatter the confidence of the banking system.

In spite of relative instability of the biggest Russian banks, one of the considerable problems can lie in the situation with major infrastructure (i.e. Olympic) projects. The econom-ics of such projects is not obvious, which may request revision of pay-ments schedule and debt restructur-ing. Thus, the question of additional banking capitalization arises.”

Dmitry RyabykhCFA, CEO Alt-Invest

“Apart from the internal prob-lems that banks face, which are already a lot, there is also the external problem of economic stagnation

an issue that leads to lower profits for companies and deterioration of the loan portfolio. Small banks face immediate consequences as their loan portfolio often consists of small affiliated companies. Seeing the inevitability of their bankruptcy, the bank owner converts the rest of the money through them, and the bank is immediately left without any means. It is hard to say how

many such banks there are in Rus-sia, but bankruptcy will continue to happen.

Major banks are more into mar-ket behavior style, even if they credit joint companies. So, in their case, we have time to forecast the upcoming bankruptcy, while both banks and government will think about bank protection. Thus, there won’t be any sudden license revo-cations. Even in the Masterbank situation, CB voiced the first seri-ous public claims in August, which was three months before license revocation.

Yet the bank was only in its seventh decade of asset management,so the Central Bank position looks quite smooth and its aggressive anti-money laundering policy will hardly become a great market problem..”

opinions oF MARkEt pARticipAnts

situAtion in RussiAn bAnking sYstEM After the “Master-Bank” license was revoked by Central Bank, deposi-tors became more concerned about the stability of the Russian banking system, as well as the possibility of tightening the Central Bank’s policy towards market participants. The survey was conducted by Andrey Urzhumtsev, CFA, Partner, EmCo Consulting company.

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Dmitry sokolovCFA, Deputy CEO “Libra Capital” Investment Company

“We are obviously now in a trend of banking sector consolidation with its cleansing of bad assets. The trend will continue next year, small and medium banks will lose licenses, but as this process is planned and controlled, chances of major bank license revocations are minimal. Most likely, we will see a growth of major banks mergers.

No doubt, such a policy raises mistrust in the interbanking sec-tor, which can lead to a growth of interest rates.”

timur HirerullinIndependent expert

In general, the situation with the Russian banking system doesn't seem to be critical: levels of liquidity, stability and efficiency remain accept-able. Despite high growth tempos of releasing consumer credits, the level of overdue debts of most banks is not yet so big.

Nevertheless, it is most likely that cleaning Augean stables from suspi-cious banks, registered in early 90s, will last longer. Thus, small banks with less than a $10 mln will be constantly closing (about 20-40 banks per year).

Apparently, banks which allow with-drawsfrom abroad and cash illegal money are going to be in the risk zone with the coming of the new CB Head. In this case, it is harder to estimate the number of possible revoked licenses. For the last 6 years though, the capital outflow from the Russian Federation amounted to about $500 billion, and the shadow economy equals almost 30-40% of Russian GDP. Therefore, under strict supervision, most market players can face problems, which can hardly be covered by the means of DIA.

Thus, at this very stage, the main risk for Russian banks can be regulator's acts, right in terms of goals, though false in terms of execution. At the moment, the main risk for national banks lies in the possibility of shatter-ing people’s confidence in banks and confidence in government's support of problematic banks.”

Rodion lomivorotovCFA, Head of Macroeconomic Analysis, OTP Bank

“Apart from a big number of internal problems that banks have, we have recently ob-served an external problem: economic stagnation”.

“Banking sector tendencies of 2013 will continue developing next year. There will still be a slowdown in the retail sector, while corpo-rate segment growth will continue weakly. Many retail banks will have to review their development strat-egy and reduce loans for high-risk borrowers, because growth of

non-payments and stricter regula-tions will decrease the margin in this segment. In its turn, CB Russia will continue tightening regulatory policies out of a concern for anex-cessive growth of retail loans. Due to the increase in requirements, many banks will face the problem of capital deficiency and will have to attract additional funding from stakeholders; the market consoli-dation will continue.

One should also expect tighter controls over banking activi-ties, mainly over their compli-ance to mandatory standards, as well as combatting illegal operations. Banking market cleansing will continue, but it will hardly lead to a system crisis because the cases will more than likely be individual.

Recent events on the market may seem like a great experience: on one side, the regulator will act more accurately and thoughtfully; on the other, the banking market will be ready for such steps.

After the banking management deals with the situation and identi-fies new requirements for coun-teragents’ reliability, the situation on the market will become more stable. Tighter controls of other financial sectors, including pension funds and insurance companies, are also to be expected.”

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cFA AssociAtion (RussiA) pARticipAtEs in giFA EvEntsThe Guild of Investment and Financial Analysts (GIFA) is a Russian non-profit organization of financial professionals.

GIFA was founded in 1998 and is a mem-ber of the Association of Certified Inter-national Investment Analysts (ACIIA) and the European Federation of the Financial Analysts Societies (EFFAS).

One of GIFA's aims is to maintain contacts and professional relationships with inter-national financial organizations. including CFA Institute and local CFA societies. GIFA invited Members of CFA Association (Russia) Board of Directors (Neil With-ers, President and Vladimir Tutkevich, Executive Director) to participate in its supervisory board in 2013, for the purpose of exchanging ideas and experiences between the two communities.

The main aim of the organization is to develop ideas on improving the local financial markets and strengthening the Russian investment community. Moreover,

Association CFA (Russia) is look-ing forward to establishing a fruitful cooperation with public authorities and major financial market players.

At different times well-known analysts, including Alexandr Idrisov and Arkadiy Dvorkovich, have directed GIFA. Since 2014 Konstantin Korischenko has headed the Board of Directors. In 2012 -2013 - the Chairman of JSCB “Investbank”. From 2010 to 2012 – the Head of Russian branch of Bank of America Merrill Lynch. From 2003 to 2010 – the Chairman of MCSE.

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DEbAtE nigHt: “MoscoW HuMAn AnD intEllEctuAl potEntiAl: coMpEtitivE ADvAntAgE oR illusion?”

The regular round of debates within Debate Night project took place on the 11th of De-cember in the “Technopolis Moskva” Center on Vologo-gradskiy Prospekt,

where CFA Association (Russia) as usual was one of the partners. The topic of the debate was human and intellectual potential in Moscow: the participants had to figure out whether this poten-tial is a real competitive advantage of Russian capital or if it is just an illusion imposed on the society and in particular business community by state authori-ties, media and public opinion. Around 200 guests visited the event.

The opinion that Moscow human and intellectual capital is a competitive advantage has been supported by Dmitry Peskov, the Director of “Young profession-als” department of Agency for Strategic Initiatives, Dmitry Molchanov, the General Director of state –financed entity “Moscow Small Business”, and Andrey Ivaschenko, the Board Member of non-profit organiza-tions “Phiztech-Souz”. Their opponents have been Michael Germershausen, the Managing Director of Recruitment Agency Antal Russia, Gleb Fetisov, the Presi-dent of “Green Alliance” People’s party, and Vladimir Tutkevich, the CEO of CFA Association (Russia). The discussion has been moderated by Gleb Dunaevskiy, a well-known business trainer and consul-tant, the Director of consulting company “Dunaevskiy and Partners”.

As a result of the discussion, the partici-pants concluded that in general, Moscow has a strong human and intellectual potential which gives unquestionable competitive advantages in comparison with other Russian, and even foreign, business centers. The business climate in Russian capital differs advantageously from the national average; and rich scientific and cultural traditions of the city attract Russian young intellectual and business elite, including people who for various reasons worked abroad for a long time.

Despite this, Moscow authorities must not rest on their laurels. “It is necessary to do everything possible so that Moscow will become a comfortable place not only to work but to live”, said Vladimir Tutkevich, “Moscow today is a sieve that collects the best professionals from all former Soviet Union Republics, including those who have prestigious international CFA certificates, but very often the best of them do not stay and move away from the city. It is necessary to make Moscow a more comfortable place for profession-als, a place where they would like to live”.

In general, Moscow has a strong human and intellectual potential which gives unquestionable competitive advantages in comparison

with other Russian, and even foreign, business centers.

Follow the link to watch the video from the meeting http://www.infox.ru/business/career/2013/12/10/__Kadrovyyy_i_intyel.phtml

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coMpEtition pARticipAnts In 2012 and 2013, in the Research Challenge took part:

3,500 students from 775 universities and 54 countries, as well as 2,200 volunteers among industry professionals..

stuDEnt coMpEtition:

cFA institutE REsEARcH cHAllEngE

The CFA Institute Research Challenge is held in three stages. At the national level of competition, the teams explore and analyze a company whose shares are listed on the stock exchange. As a result of its work, each team has to present an analytical report with an explicit recom-mendation: ‘Buy’, ‘Hold’ or ‘Sell’ rec-ommendations regarding shares of the target company. The team has to defend its forecasts and conclusions in front of the commission of investment experts.

The winning team of each national stage proceeds to the regional stage, where it competes with the best teams from other countries in one of the three major geographic regions: North and South America, the Asia-Pacific region, as well

as Europe, Middle East and Africa. Win-ners of the regional stage go to the global final that defines an overall competition winner.

Four years ago, CFA Association (Russia) organized the Russian stage of competi-tion for the first time. Since then, the level of student community involvement, as well as the teams’ preparation level, has been steadily growing. Such leaders of Russian industry as “Severstal”, GMS Group and “Mostotrest” have acted as subject companies for the research.

The Russian stage of CFA Institute Research Challenge, the Annual Global Student Competition in Investment Analysis, was launched on the 18th of November in the office of OJSC Rosnano.

In 2013, the Russian team of the Econo-mics Faculty of the Moscow State Uni-versity managed to participate for the first time in the global final.

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This year, QIWI Company, one of the most well-known Russian brands in the sphere of newest payment technologies, agreed to become an object of research. The company manages the biggest network of payment terminals in Russia and actively develops its own electronic payment system. The company held an IPO in the year 2013, and the company's shares are traded on the NASDAQ stock exchange.

Eight teams from Moscow and Saint-Petersburg universities take part in the current Russian phase of competi-tion. The teams presented their draft reports on December 10 and their final research results in mid-January, 2014. While Russian investment community experts study and evaluate reports, the teams have the task to film 10-minute

videos, presenting their research. Video-presentations are the second element to be included into general note.

Only 4 teams are going to pass the Rus-sian competition phase, and only one of them will represent Russia on the regional stage in Milano on April 2, 2014. Global final of CFA Investment Research Challenge will take place in Singapore on the 25th of April.

We would like to wish all participat-ing teams luck, and thank students, their professors, as well as investment experts, who agreed to become team mentors and Russian phase judges.

Only 4 teams are going to reach the Russian competition phase, and only one of them will repre-sent Russia on the regional stage in Milano.

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invEsting into cEntRAl AnD EAstERn EuRopEInvestment Attractiveness of Central and Eastern Europe economies has been on the rise. The participants of the conference, holding in April 2013 in press-center RIA Novosti, discussed the perspectives of investment to the region.

On Monday, the 22nd of April, 2013, over 200 investment bankers, real sector businessmen, regulating representatives from Russia, Ukraine, Belarus, Poland, Czech Republic, Hungary, Romania and Bulgaria gathered in international press-center “RIA-news”, in order to discuss investment attractiveness of countries of Central and Eastern Europe (CEE). CFA Association (Russia) acted as organizer of “Investing into Central and Eastern Europe” conference.

Heads of the biggest financial organi-zations participated in the conference, including Alan Meder (Head of Manage-ment Board, CFA Institute), Jorg Bon-gartz (Head of the Management Board, Deutsche Bank), Ekaterina Trofimova (First Vice-President, Gazprombank), Adam Robert Kvyatkovski (Vice-President, Warsaw Stock Exchange), Peter Koblik (CEO, Prague Stock Exchange), Konstantin Korishchenko (Head of the Management Board, Investbank) and many other repre-sentatives of the world business society.

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The full conference agenda was divided into 7 discussion panels.

Alan Meder, Head of the Manage-ment Board, CFA Institute, opened plenary sitting:

“There are so many strong educa-tional programs in Moscow, and we are glad in the CFA Institute to be part of this educational process. This is the area of the world where there are so many opportunities for financial analysts to use their talents, to assess sources and uses of financial capital. I am also very confident that the financial analysts here are among the best in the World, helping to prevent the waste of human capital, as well as financial capital, to make sure there are processes in place to prevent fraud and the waste of capital.”

Deutsche Bank Head of the Man-agement Board Jorg Bongartz announced company’s strategy:

“Today we are observing the weak-est situation in Western Europe, which makes many companies review their strategies, and that shifts the focus onto CEE coun-tries”, marked Jorg. “Nowadays, Deutsche Bank strategy is divided into following directions: first, we want to remain corporate invest-ment bank in CEE regions, and Russia remains priority market for us. Second, we are going to grow infrastructural platforms, in order to provide service for the whole Deutsche Bank Group.”

In terms of discussing investment climate and CEE countries attractive-ness, Alexander Murychev, Executive Vice-President of Russian Chamber of Trade and Commerce, spoke out his point of view:

“To my mind, conference organiz-ers were absolutely logical that we should find positive signs in today’s recessionary symptoms, which we observe now in CEE countries’ economies. There have always been efficient ways out, and we should use new opportunities to develop bilateral and multilateral relationships between Russia and CEE countries. Let’s say, events in Cyprus have already stimulated many investors to reallocate as-sets into CEE countries. From the other side, Russia wields a large investment market, opportuni-ties and brightening conditions. A major tax preference project on the Far East, implying zero dues and profit taxes, will be implemented in 2014.”

One more important question, discussed at the meeting, became debt markets and diversification opportunities for international investors. In terms of her speech, Ekaterina Trofimova, first Vice-President, Member of the Man-agement Board of Gazprombank, remarked:

“Traditionally, foreign investor’s interest in CEE region shows itself towards most liquid markets in terms of investment opportunities, which they are offering. In general, CEE region continues having mod-erate debt burden; opportunities for developing debt market are

serious, so default level, which we observed during the crisis, is insig-nificant. Exchange rate volatility became moderate during the last years”, outlined Ekaterina. “To my mind, economic slowdown is connected with technical develop-ment slowdown, which accumu-lated from early 2000s. If we close this gap, growth perspectives will open. Gazprombank sees separate opportunities for investing into the region, as further development in terms of regulation remains unanswered. Isolated investments are the most attractive if speaking about efficiency, return, manage-ment and transparency.”

“Nowadays, the large part of investors invests globally. In this purpose, some local attractiveness, local “gingerbreads”, of course, come around, but, in fact, almost every good idea of raising attrac-tiveness of a particular market is simultaneously picked up by other countries, and finally, this or that advantage no longer exists”,

marked Konstantin Korishchenko, Head of the Management Board, Investbank.

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EuRopEAn invEstMEnt conFEREncE 2013:

FRoM cAutious optiMisM up to FoREcAsts oF FinAnciAl DisAstER

REAsons FoR optiMisMAuthor: Andrey Urzhumtsev, CFA

According to Yves Mersch, member of ECB Management Board, calmness and confi-dence are now returning to European capital markets.

He says, “They managed to stop a chain reaction of financial crisis in EU, which is indicated by foreign capital inflow to Eurozone coun-tries from abroad, as well as by decline in financial fragmentation of Eurozone economies.”

Mersch believes that recent measures, aimed at eliminating weaknesses in the structure of European monetary union, brought some success. Thus, resulting from fiscal policy reforms at the level of individual countries, Euro-zone budget declined to 3.1% GDP. For reference, this indicator equals 5.8% in the USA and exceeds 9% in

Japan. Moreover, Eurozone debt to GDP ratio amounts 96%, while in the USA and Japan it equals 106% and 244% respectively.

The ECB representative assured that plans on strengthening bank-ing union in Eurozone would ensure necessary integration in the banking sector, so that game rules are unified for everyone regardless of borders. In particular, Mersch mentioned plans on implementing a single supervisory mechanism, as well as a unified one to address crisis situations in individual Euro-pean banks.

Mersch described the main ECB priorities for the next year as risk assessment in the banking system, quality of bank assets and stress tests designed to determine the extent to which banks are able to cope with external economic shocks. According to him, working in this direction will help to restore investors’ trust in the Eurozone banking sector, raise its transpar-

ency and smooth out funding costs differences between banks of the biggest and periphery European economies. Mersch emphasized that aa decrease in borrowing costs already concerns not only sovereign borrowers, but also the private banking sector in Eurozone.

However, an ECB Management Board member remarked that there's much to be done in order to overcome crisis consequences in Eurozone and prevent similar disasters in the future. First of all, he says, it is necessary to restore real sector crediting as the main priority in European banking activ-ity. Mersch also pointed out the need of strengthening the role of capital markets, particularly recov-ering securitization market, in order to provide small and medium businesses an access to financing.

On the 6th European Investment Conference, held by CFA Institute in London on November 14-15th, 2013, the calming tone of European financial market regulators mixed up with warnings from investment experts.

While European Central Bank (ECB) representative tried to assure conference participants that its measures on stabilizing economies started bringing considerable results, many presenters among market representatives didn’t hide their skepticism.

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vigilAncE oF MARkEt pARticipAnts

The ECB representatives' tone has highly contrasted with the picture, described by David Kelley, Chief Strategist of JP Morgan Asset Man-agement, CFA. He directly refused to admit ECB’s merit in balancing European economy. According to him, it happens more in spite of than thanks to ECB efforts

Kelley advised regulators to facilitate trust on the financial market, instead of pumping up market liquidity.

It’s worth mentioning that the MEP Phillip de Baker agreed with Kelley, having posted in his Twitter feed that those who make decisions in Europe should get acquainted with this strategist’s presentation.

James Rickards, a Tangent Capital Partners Executive, appeared to be even more cautious towards regu-lators’ activities. The expert com-plained that

more and more countries are involved in the "currency war" — the depreciation of their currencies with the aim to drive economic growth.

According to Rickards, two cur-rency wars have already happened in the 20th century, the first one — in 1921-1936 and the second one — 1967-1987. Both these periods were characterized by competitive currency depreciation of developed countries. Rickards says that the current currency war differs from previous ones because now devel-oping countries are not competing

with each other, but coordinately devaluating their currencies — dol-lar, euro, yen and pound sterling — against developing countries’ interests. In accordance to his logic, developing countries have to print money, in order to somehow keep exchange rates, importing inflation from developed countries by that means.

Rickards emphasized that cur-rency devaluation is consciously used by regulators to exit the structural depression; as interest rates approached zero, currency depreciation became an additional instrument of monetary smoothen-ing. He says, ”there’s still a bal-ance between defliatory pressure from reducing the crediting level in the world economy from one side, and inflation pressure of the print-ing press from the other one.” At the same time, this process can easily go out of the control and end up with financial system col-lapse, assures the expert. Rickards marked that most insightful inves-tors are already preparing for a disaster, investing in real assets. As an example, the expert cited a recent large-scale purchase of gold made by China, as well as the acquisition of Warren Buffett share in the railway business. Rickards also offered his vision for how the government will react disorders,

which will inevitably follow the financial system collapse. “Wait for tough reaction. I would describe it as neo-fascism”, said Rickards.

Dylan Grice, Head of Research, Edelweiss Holdings, also added skepticism, sharing observations with respect to world major central banks over the past three decades. According to him, financial engi-neering, the aim of which was largely to control inflation, led to a problem of another kind — "credit inflation", which contributed to the loss of money in an important part of their role in society. He says, it became less popular to save money than to spend them in developed countries, and now we are facing consequences of this cultural shift.

As Grice assures, money serves not only as a unit of exchange or preserving value, but also as an important ele-ment of trust in the society. Money games, which involve central banks, shatter confi-dence, says the expert.

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conFEREncEs

CFA RUSSIA QUARTERLY

MAstER-clAss:

businEss vAluAtion MEtHoDs

tRAining:

FinAnciAl MoDEling oF invEstMEnt pRojEcts

On Thursday, the 3rd of October 2013, CFA Association Russia held an intensive master-class regard-ing "Business valuation methods using financial models".

For the first time it took place at the ATC International Moscow office. Many people know that this is the name under which one of the most popular CFA Russia trainings is held several times per year. Unfortunately, not everyone can attend it: the training has a cap on the number of participants, lasts all weekend long, and has a cost constrain to some potential participants. CFA Association Russia understands these constraints, and so for the first time since the launch of the popular training, CFA Association Russia invited everyone to the master-class.

Unlike the "main" training, the master-class was not followed by the award of certificates. But during the 1 1/2 hours the participants refreshed their skills of investment analysis and summarized knowl-edge, speaking on such topics:

Main valuation methods (DCF, Comparative, Replacement)

Links between financial analysis and forecasting realized in financial model

Methodology and application of FCFF, FCFE, EVA, Abnormal Earnings methods

Comparative valuation. Key issues, advantages and disadvan-tages of the method. Commonly used financial and operational multipliers

Issues associated with the accounting and forecasting of reserves (provisions) and deferred taxes

Professional development and continuous education are the key spheres of activity of CFA Associa-tion (Russia), and we are aspiring to provide the most up-to-date and rel-evant financial modeling and busi-ness valuation courses to members of the CFA community in Russia.

Our training sessions usually run all year round with a short summer break, and offer intensive two-day classes at convenient and central locations in Moscow. On 30 Novem-ber – 1 December we ran one of our newer trainings — Financial Mod-eling of Investment Projects. This

training focuses on development and operation of dynamic and error-free financial models that evaluate all stages of the project management. This training was delivered by two of the most outstanding members of CFA Association (Russia): Dmitry Ryabikh, CFA and Mikhail Panfilov. This time the participants of the master class included 10 profession-als representing such companies as Vneshekonombank, RUSNANO, Sovkomflot and others.

Dmitry Ryabikh has over 17 years of experience in the fields of finan-cial analysis and planning, au-thored a number of methodologies and software packages in project and audit management and runs over 20 commercial valuation of project trainings a year.

Mikhail Panfilov is working at the Finance Division of Sberbank. Mikhail has been an assistant lecturer with us since 2012 and his teaching methods constantly receive only the highest praise.

EDucAtion

19www.cfarussia.ru

couRsE:

HoW to DEtEct FinAnciAl stAtEMEnt MAnipulAtions?

Course instructors were Konstantin Zus-manovich, corporate and banking finance expert (with more than 15 years of experi-ence), CFA & FRM candidate, PMI & GARP member, and Yulia Barmina, corporate and banking finance expert (with more than 12 years of experience) and GARP member.

During two days, professionals in finan-cial analysis studied both well-known and potential manipulations with corporate statements, as well as simple mistakes of financial directors, which distort real situa-tion in the company and can influence its evaluation. The course also included such

issues as signs of unreliable information in an enterprise balance, income statements and cash flow statements. Documents, used within the course, covered three cur-rent most popular standards: RAS, IFRS and US GAAP.

The most important though became practical part of the course, during which participants got an opportunity to test acquired knowledge, consider typical errors, estimate the mastership of corpo-rate manipulators on real examples, as well as the capability to deal with thinly-veiled tangles of financial reporting.

The most important though became practi-cal part of the course.

If you wish to contribute your article, analysis or educational materials, please contact us at

vladimirt@cfarussia.ru

CFA Association (Russia) organized the intensive course for financial analysts “Detecting financial statements manipulations and analyzing real financial business situation” which took place on the 14th-15th of December on Kalanchevskaya Street in Moscow.

CFA Association (Russia) is inviting investment professionals to attend three intensive courses, which have already been completed by more than 300 of your colleagues.

FinAnciAl MoDElling oF invEstMEntpRojEcts

pARticipAnts Will lEARn:

How to create simple, understandable and error-free financial models in Excel.

• How to build dynamic financial models that reflect all project parameters

• Features associated with the planning of income, expenses, investments, fiscal charges and other components

• Model structuring based upon the prac-tices of the leading investment banks

• Several techniques for the building of complex models

• How to manage capital budgets through turnover cycles

• Cash flows statement/ Criteria for the selection of a modelling approach, cor-relation with the history of company's activity

• Structure and format of the project's financial statements

• Models of the economic and fiscal envi-ronment/ Accounting for inflation and price fluctuations

• Indicators of project effectiveness: use of MS Excel formulas and self-construc-tion of indicators.

• Calculation of solvency indicators and their use in the planning of the project finance structure.

• How to check the model for possible errors

• Simulation analysis

MEtHoDs oF businEss vAluAtion WitH tHE HElp oFFinAnciAl MoDEls

pARticipAnts Will lEARn:

How to determine the value of a business, on the basis of his-torical data and other factors, by using a variety of valuation methods..

MoDElling• Building a comprehensive financial

model from scratch. Purpose and objectives of a financial model

• Structure and logic of financial model building in MS Excel. Basic modeling rules in MS Excel

• Links between financial analysis and forecasting realized in financial model

• Analysis of historical information and defining of the model's key drivers

• PL forecasting: Revenue, COGS and SGA, fixed/variable cost split

• Forecasting of Fixed Assets, capital expen-ditures and depreciation, working capital

• Forecast of the income tax, property tax and turnover as to VAT

• Link between PL, BS and CF. Model balancing

• Review of several industry specific mod els, VC and PE models, Project Finance models

vAluAtion• Main valuation methods

(DCF, Comparative, Replacement) • The concept of Enterprise value,

the components of this concept• Theoretical foundations and various

applications of DCF methods• Methodology and application of FCFF, FCFE, EVA methods of valuation• Methodology and application of Abnor

mal Earnings method• The discount rate WACC – methodology

of calculations for Russian companies• Comparative valuation. Key issues,

advantages and disadvantages of the method

• Commonly used financial and operational multipliers

• Issues associated with the accounting and forecasting of reserves (provisions) and deferred taxes.

DEtEction oF MAnipulAtion WitH FinAnciAl stAtEMEnts AnDAnAlYsis oF tHEbusinEss’s REAlFinAnciAl conDitionDuring the workshop, we use financial reporting cases pre-pared under RAS, IFRS and US GAAP standards

• Purposes, users and structure of financial reports

• Purposes of manipulation and three lev-els of "manipulators'" professionalism

• Interrelations of financial statements as the first step to data validation

• Balance Sheet analysis

• Profit and Loss Statement analysis

• Cash Flows Statement analysis

• Errors and manipulations occur-ring in groups’ consolidated financial statements

• Comprehensive financial analysis of business, detection of inconsistent and incorrect information, assessment of the business's real state

• Common mistakes of analysts during calculation, comparison and practical interpretation of ratios

• Final workshop on the detection of manipulation and complex analysis of the business's financial condition

The workshop is built on real-world examples.

ADDitionAlinFoRMAtion:

Victoria Pavlova victoriap@cfarussia.ru +7968-593-30-84 www.cfarussia.ru