Daniel Satinsky: The last time we talked we focused on your entrepreneurial activities as part of the development of the expat institutions and impact on the emerging economy in Moscow. And so this time I want to talk with you about your experience with the financial sector, because as we both know, there was none in the Soviet Union. All this was brand new, and through the period of privatization, and then later building up institutions, you played a role in that and you experienced that, so I’d like to maybe begin by talking about the privatization period and then move on from there.

Bernard Sucher: So I’ll start?

Daniel Satinsky: Yeah. Go.

Bernard Sucher: Okay, so the reason I knew anything about the finance sector, such as it was, when I first moved to Russia, I was coming out of a finance career. When the Soviet Union actually disappeared, I was at Goldman Sachs, and I had recently visited, for the second time, Russia, and the difference between the Russia that I saw in 1991 and the Russia that I saw in 1980, at least in Moscow that I saw the 11 years’ difference was astonishing to me, so exciting, because it was clear by August 1991, just before the coup against Gorbachev, and I was visiting for a long weekend, I was so encouraged by the physical changes that I had seen walking around the streets, I was encouraged by the fact that I was visiting a friend who was working in a commercial operation, private business, and as the old saying goes, you know, the winds of change were clearly blowing through the streets.

So I was a finance guy at that point, nine years in markets from New York, to Asia, to Europe, and this miracle, historical shocker of all shockers was happening right on my doorstep. And when I couldn’t convince the partners at Goldman Sachs to send me to Moscow to open an office for our bank there, I resigned and I went to Moscow. And on the way a gentleman who was a senior figure at Salomon Brothers heard what I was doing. He called me. His name is Rod Berens. He’s one of the great human beings that I’ve ever met in my life’s journey.

Rod Berens cold called me, and brought me into his office, and said “I’ve been working in the Soviet Union on various financing projects for the last few years, and if you’re going to actually quit Goldman Sachs and then move there, maybe I can help you”. And he had his assistant bring in one of those, as we had in those days, old-fashioned Rolodexes and said, “Carrie, copy all these business cards and give the information to Mr. Sucher, he’s going to Russia.” So this was my prospecting list when I first moved over in the spring of 1993. And towards the top of the list was a business card from a company called Troika Dialog, which of course I had never heard of before.

But sometime in my first week in Moscow I was on a Metro and I saw an advertisement for this very same company, Troika Dialog, and there was an address, and it was associated with a Metro stop. So I took the Metro all the way out to find this company Troika Dialog. And this was in a Metro called Profsoyuznaya, and the building where Troika Dialog was housed was an old Soviet institute for, I think it was, the Central Economic Mathematics Institute, this fantastically ugly building right near the Metro, and if I’m not mistaken, on the third floor. And I still see this in black and white, because that’s what it looked like to me in real life, was this roughly converted Soviet office space. The smell of it is still in my nose, a musty smell that pervaded all government buildings in the former Soviet Union.

There were half a dozen young people scurrying around computers and answering telephones. And I walked in, met a young man, and explained to him in my bad Russian. He answered me in his not very good English. But I explained to him that I wanted to invest $20,000 in the Russian privatization option. And that’s what, of course, Troika Dialog was doing in those days. It was what it was advertising that it was doing on the Metro. And when the young man understood that I was offering $20,000 to invest, he swallowed hard, excused himself, and went to make a phone call. And he came back and said this is really a lot of money, and you need to talk to my boss about this.

So that was the beginning of my journey in Russian financial markets. It turned out that $20,000 was far more money than Troika Dialog had in its own bank account, and seemed to exceed any other customer account size that they had at that moment, so I was a big enough fish to warrant the attention of the recently appointed boss of Troika, who was in fact a part-time employee, because he was still getting his degree, still studying. And a lot of Russian investment companies, broker-dealers and other financial companies that became quite well-known in that space later were, in fact, not born in a garage, but born in the dorm rooms.

Ruben Vardanyan was a student, and he was the new general director of Troika Dialog. And I met him in the Radisson Slavyanskaya Hotel. This was one of the few so-called Western standard places of business, and it was leveraging the fact that it had places to eat, that it had decent telecommunications infrastructure, that it was well located, with access to roads and subway system. They had built a business center, and a fair amount of what constituted the international business community was either based in the Radisson Slavyanskaya or across the river in the Mezhdunarodnaya, the international hotel, and people rented offices, or rented rooms and made the offices, or otherwise convened rather frequently in the Radisson hotel or one of a couple of others of such type.

And the reason we were in the Radisson Slavyanskaya was because the bank that had served as the foundation for the investment bank, Troika Dialog, the commercial bank that had served as the foundation of the Troika Dialog was Dialog Bank, and their main branch office was located in the lobby of the Radisson Slavyanskaya Hotel.

Daniel Satinsky: Right. They were the first foreign commercial bank, I believe.

Bernard Sucher: I believe they were the first foreign commercial bank. Fascinating story of a gentleman named Joe Ritchie, who was a pioneer himself in the brand new options market that kicked off in the 1980s, basically an application of the Black-Scholes theory, which really flowered in Chicago, and Joe Ritchie founded a company called Chicago Research & Trading, where they, using the first computer models in finance, based on Black-Scholes theory, they figured out how to do arbitrages that pretty much guaranteed that if you went long something and short a related security you were going to make a profit, it couldn’t lose. And Joe Ritchie I think characterized this, or somebody else did, as something like snatching dimes from in front of a bulldozer. But if you were good at it you were going to make money.

And Joe Ritchie made so much money that he got in his head that he had to participate in the Soviet economy that was catching the attention of everyone, thanks to Gorbachev’s perestroika reforms. So, Joe Ritchie traveled to the Soviet Union, and as I understand it, they rolled out a red carpet for him, and he was one of the first people to get a license in the new Russian banking center. And to run that bank he tapped a young fellow from NatWest’s investment banking business in New York City. He came from White Russian parentage, a gentleman named Peter Derby.

Peter Derby had gone over as Joe’s representative to run Dialog Bank, and while he was there Peter realized that there was a new set of laws that were going to cover investment banking kind of advisory work that might be useful for Dialog Bank’s corporate clients, so Dialog Bank set up Troika Dialog. And since Peter was busy with Dialog Bank, he had to have someone else run Troika Dialog. His original general director had recently left and gone on to bigger and better things, a remarkable man in his own right named Vladimir Kuznetsov. Ruben Vardanyan, ready or not, student, had stepped up and he became the general director of Troika Dialog when I walked in the door.

Daniel Satinsky: And he is the person you met later then in the lobby of the Radisson?

Bernard Sucher: Yes. And I’ve told this story in different ways over the years, but it’s one that will never fade from memory. The Slavyanskaya may have been the main venue for Western business in Moscow in 1993. There were specific reasons for that, not least because the joint venture was organized on the American side by a fellow from Oklahoma [Paul Tatum]. But a lot of other things were happening at the Radisson Slavyanskaya at 10:30 on a Thursday morning. First of all, evening was always really reluctant to give up its grip on the emerging day, so even at that time of morning you kind of felt like you were in a nightclub. There were men dressed as if they had just come out of a disco, but they were not finished drinking. There were as many women as men, and dressed in a variety of, the only thing I can describe is cocktail costumes. There were people clearly packing weapons and looking like they had been born somewhere in the Caucasus, and then they’d be rubbing shoulders with legitimate cowboys, or oilmen from Texas. It was the Star Wars bar, basically, with the creatures, colorful, flamboyant, and very loud.

And while I tried to get comfortable after I sat down with this young fellow in front of me who, after all, I was trying to figure out whether I could trust him to invest $20,000 in Russia’s brand new privatization auctions, so I was trying to get comfortable, this young man could see that I was casting my eyes around the room, and just kind of astonished at the scene around me. And Ruben Vardanyan said, “I know this is not a normal country. Maybe it never will be. But if I build a normal business, and if other people build normal businesses, then maybe that’s how one day we’ll have a normal country. Please help me build a normal business.”

Daniel Satinsky: So, he quickly moved this from you being an investor to you being an advisor or participant in the business, is that right?

Bernard Sucher: Yes. And this was a man after my own heart, because I was there to help somehow. And it just stood to reason that given the fact that I had some real experience in financial markets, and in fact emerging markets relatively, and immature markets such as we had in Asia in those days, that I should be of some use. I should be of more use in the field that I had been earning my living in than any other. So, I was anxious to be helpful. And Ruben’s vision for what a financial institution could do in this new world was very compelling to me, to put it gently. I was lit on fire with the notion that we could build an influential financial company that would serve as a standard for others to follow. And I wasn’t alone in thinking that. It was a common theme among the early entrepreneurs from the United States who moved to Russia. But that became my mission from the start. And all kinds of silliness ensued from that.

Daniel Satinsky: So, what was your initial position with Troika Dialog? What were you supposed to be doing?

Bernard Sucher: I didn’t really want a position. I wanted to be helpful. So, I’d just arrived in the country. I saw that they needed a lot of help. But I also needed to do a lot of learning myself. I had been given this long list from Mr. Berens at Salomon Brothers, but I had just started working my way through it. I wanted to have the freedom to explore. And after nine years of working on Wall Street, I wanted to also relax a little bit. In short, I was not looking for a job. I was looking to be helpful, but I was not looking to start punching the Wall Street version of a clock.

Daniel Satinsky: Right. So, what does helpful mean? Meaning setting up procedures, telling them how banks run in an international context? What does it mean?

Bernard Sucher: With Troika it started out very simply. I was given an application form to fill out so that I could open an account, somehow convey $20,000 into that account so that Troika could go out on my behalf and start buying privatization vouchers. So, the account form was written in Russian and English. The English was misspelled, and there were certain questions that were asked wrongly, and there were questions that should be asked that were not being asked at all. So, I offered to create a proper account form based on my extraordinary experience being an ordinary citizen who’d had to fill out a lot of account forms in English in financial institutions. That was one element. I was given a brochure in English describing all the wonderful benefits of working with Troika Dialog. That needed to be edited from first word to last, and I edited that. More seriously — by the way, I never stopped editing English language documents until the day I left Russia in June 2015. It just became a thing. But more seriously, the company was passively receiving clients that were referred to it, usually from Dialog Bank.

Daniel Satinsky: And they were foreigners who were referred?

Bernard Sucher: Foreign clients. They were hedge funds that were beginning to invest, they were broker-dealer desks like Merrill Lynch or Salomon Brothers that were beginning to invest in privatization auctions. And while the small band of merry lads and lasses at Troika were gaining an education in school and in real life every day, they had never dealt with financial professionals from London and New York City, and I could easily imagine what kinds of questions these people would be asking, what their objectives would be, what their concerns would be. And so obviously where the rubber met the road, where I could really be helpful was preparing our colleagues for those interactions, training them, and ultimately leading those interactions myself, which is what I began to do.

And I loved the people at Troika. I loved the daily revelations of what was going on around us. Trying to understand what government policy was when government officials themselves did not know what the policy was, when written information was so scarce and difficult to come by. This was effectively pre-internet in Russia. Having potential clients ask you about the Russian oil industry and knowing that it was this fabulous El Dorado of wealth, and not knowing the first thing about it, or where one could get their hands on a report in any venues that would help you understand what the Russian oil industry actually was. This kind of new world moment, where every question was legitimate, and there were no complete answers, if any answers were available at all. Again, I just loved that environment.

Daniel Satinsky: So, information was currency, in a sense.

Bernard Sucher: Absolutely. And the other thing was that once people began to get enough information that they were prepared to take nonetheless big risks, but risks that they felt that they could at least assess a little bit, the next thing that was a currency was who could you trust in this new wild East with your money. Who was actually going to go out and buy the vouchers, or buy the newly issued shares? How did you know that you could trust them to do this and that you would get some kind of property in exchange for your money?

And when enough trading began to develop, we were one of the relatively few places where a person who didn’t speak Russian, who wanted to have some sense of his counterpart, the person opposite, we were one of few places where you could go where oh, there’s a Western organization associated with this operation, there are people in this company who not only speak English, they actually understand the terms we’re using, the financial context in which we’re in. And so, we were very quickly in great demand, in short.

Daniel Satinsky: You were like a gateway for foreigners into the Russian economy, to the extent that it was available.

Bernard Sucher: Absolutely. And depending on who you were, you could find your way through that gate via Credit Suisse, you could find your way through that gate at Salomon Brothers, through Merrill Lynch. But you were going to pay a lot more money to go through a Western institution to access a local supply of privatization vouchers or…well, they were mostly privatization vouchers in 1993. There were very few shares that were available, shares that were trading. But markups between the street price for vouchers and what you’d pay if you were trying to buy them through a, say, Salomon Brothers trading desk in London could be 300, 400%. And there’s no way you would know that.

So if you were a true pioneer investor at this dawn of emerging markets in this wildest of all new frontiers, Russia, you really wanted to find somebody like Troika Dialog. And there were other places, of course, that were developing at the same time, and so it wasn’t like we didn’t have any competition. But good luck finding who the competitors were. Again, there was no phone book. You couldn’t Google who was out there. It was a rumor mill, and we were well placed in the rumor mill principally because if you walked into the Radisson Slavyanskaya there was a Dialog Bank there, and if you asked, they’d be sending you to Troika Dialog.

Daniel Satinsky: So I just want to interject for just a second, because for the sake of the tape and people listening to this later on, at this period of time in privatization all Russian citizens were given a voucher with a face value of 10,000 rubles, and with then a list of companies that were going to be privatized by auction, and you could use your coupon to become a shareholder in these privatized industries. So that was the investment opportunity, was to buy those vouchers so that you could then participate in the auction and buy shares. I think I have that accurately described, right? And then the Russian citizens, most of whom had no idea what these vouchers meant or what they were going to get for them, were selling them, and organizations like yours were aggregating them on behalf of investors with the idea of buying shares in newly privatized businesses, about which people knew almost nothing, right?

Bernard Sucher: That’s an excellent summary. And just to put a point on it, 10,000 rubles on January 1, 1993, bought rather more than 10,000 rubles on March 1, 1993. We were in a hyper inflationary environment and given the fact that most recipients of these vouchers had, as you suggested, no way of evaluating their worth, but were generally speaking not being paid their wages on time and had already suffered a tremendous diminution in their savings, the market price for vouchers was under pressure from the very start.

And let’s say that the typical daily trading price for vouchers was a U.S. dollar equivalent of say $20 in the middle of 1993. Well, with roughly 150 million vouchers outstanding, that meant that much of the capital stock of the former Soviet Union was in aggregate valued at about $3 billion. So, whether you knew much about a specific oil company or the former gas ministry, you just kind of had a sense that if I manage this process properly an entry point at a $3 billion aggregate valuation on Russia’s future stock market is probably a pretty good bet.

Daniel Satinsky: And foreigners understood that better than most Russians at that point. Is that fair to say?

Bernard Sucher: Foreigners had the experience and the context to evaluate that as an opportunity. They had money that very, very few Russians could dream of having. They could afford to lose money in the speculation. And so foreigners dominated speculation in the early years of the Russian market, no surprise. To the great disadvantage of Russian citizens, for sure. But there were larger policy issues that were at play, and not very well understood at the time.

Daniel Satinsky: Right. So, at Troika Dialog you’ve got investment funds coming into the company with the expectation you’re going to go out and buy vouchers that you’ll later use to purchase shares. How did you buy vouchers?

Bernard Sucher: So this was a cash market without any meaningful electronic information. And when I say it’s a cash market, we bought vouchers, which were pieces of paper, in exchange for another piece of paper, either denominated as Russian rubles or U.S. dollars. So, as our operation ramped up and we started accepting orders from hedge funds or major Western broker-dealers or investment banks who were intermediating this traffic, we started out every morning with a million to five million dollars’ worth of orders to buy vouchers. And we had to have a million to five million dollars’ worth of cash physically available to us to go out and conduct these transactions.

Daniel Satinsky: And go out meaning where? Where did you go?

Bernard Sucher: So, there was a more or less organized, formal exchange based in the old Moscow post office on Myasnitskaya, central Moscow. And that was our main venue for purchasing vouchers. But we also appreciated from the beginning that every person had their own requirements, had their own price, and people were distributed across the largest country physically on the planet, so if we wanted to get the best price for vouchers it made sense for us to go to where the sellers were. And if those sellers were out in Tomsk or a little bit closer in Nizhy Novgorod, then we would send out a team, with cash, and we’d meet the locals, and where their vouchers were, and buy locally.

I mean, you can imagine that this is risky, especially in a country where people had been impoverished rather dramatically almost overnight in the recent past, where no elements of the former economy really appeared to be working, that running around with bags of cash was a dangerous activity. So we had to have security present all the time. So we were going out with guns, or men with guns, to ensure that we were not robbed.

Daniel Satinsky: Were you ever robbed?

Bernard Sucher: No, we weren’t. Not once. We got good at the practical logistics of picking up huge amounts of paper, dollars, in the morning at Dialog Bank, ensuring that our money was counted and packaged in a way that made handling and accounting possible, as easy as possible. We got very good at making sure that we had adequate security through a very, very long day. And within that day we were always running other risks, the biggest of which was potential counterfeiting.

Daniel Satinsky: Ah, the counterfeit share, voucher.

Bernard Sucher: And counterfeit dollars, and counterfeit vouchers. Russia was, at that time, in 1993, 1994, the largest physical market for U.S. dollar cash. Russia sucked U.S. dollar cash out of the global circulation system. Plane loads of U.S. dollars were flown in daily to feed the Russian economy, not least for financial speculation that our counterparties and we were engaged in. You’ve got to remember that the biggest bill that the United States issues, for all practical purposes, is a hundred-dollar bill. Well, that will buy you five vouchers. A million dollars is 10,000 pieces of paper. And so, there’s a lot of scope for counterfeit there. And when you run out of hundred-dollar bills, the numbers start getting really — because there’s not that many $50s, we found out. You quickly go to $20s.

Daniel Satinsky: Right. And that’s a lot of paper.

Bernard Sucher: Yeah. And to me the most remarkable aspect of this, looking back, and at the time the horror film that was running in my head was that after accepting buy orders aggregating in the tens of millions of dollars, and then converting those dollars into privatization voucher purchases, generally speaking $20 worth at a time, so you’re dealing with 20,000, 30,000, 50,000 pieces of paper as purchases every day. And then you had to take the serial number of the privatization voucher, and I believe it was 14 digits, and at least three times, and if I’m not mistaken, more times than that, you had to physically write down that voucher number as part of the process of recording your ownership and submitting the voucher into a given privatization auction so that later, sometime later, no promises when, we would get shares in the equity of a company that almost nobody knew almost anything about.

So for me the nightmare was that people trusting me to ensure that over this long period of time, this indeterminate period of time from the moment they wired cash into our bank, and we turned that wire into physical cash, and then we bought those vouchers, and we filled out all those forms, and made sure that every single one of those checks was associated with an ultimate end client who was trusting us that somewhere at the end of this process they would get their shares, how could that possibly go right?

A year later it turned out that we had not made a single mistake in all of those transactions. We delivered all the shares that we were supposed to deliver. And maybe we were wrong about something, but our clients were equally wrong. Nobody ever thought that their investment had been undercounted or underrepresented in the ultimate distribution. To me that’s arguably the greatest professional miracle I’ve ever participated in.

Daniel Satinsky: And that whole period of the voucher purchase and auction, it merged into a different period where shares became traded, and not vouchers anymore, but how long did that voucher period last?

Bernard Sucher: Well, the voucher period started in, if I’m not mistaken, in late 1992 and it actually carried on for a number of years. I want to say that even in 1997 and ’98 there were still some privatization vouchers. But the main 90% plus of the major companies and 90% plus of privatization vouchers was certainly done by late 1994, I’ll say the autumn of 1994.

And so for those who know something about the stock market, it might be helpful to just understand that the privatization vouchers came out in 1992, were actively traded in 1993, ’94, but the point of these privatization vouchers was to get stock in recently formed, so-called joint stock companies. But that stock had not been issued yet. So, the entire Russian stock market was “when issued.” You’ll get your stock when it’s issued. And most of that stock was not issued at all until the middle of 1994. Like we were getting the results of privatization auctions in 1993 and 1994 suggesting that we should get this much stock for our customers, and then we have to distribute it to them and get everything registered. But a long period of time, from the middle of 1993 until the latter half of 1994, when we were trading stocks, we were trading “when issued.” There wasn’t —

Daniel Satinsky: You were writing “when issued” of shares.

Bernard Sucher: Yes. So, we were basically making cash settlements on pieces of paper that didn’t really exist yet. And in a marketplace, again, that wasn’t centralized, had no settlement regulation, no real banking —

Daniel Satinsky: No share registry, right, at that point?

Bernard Sucher: Nothing supporting it, no. Well, the registries were, at that time, almost all based on a specific company, like a book, a specific company book. That’s a whole ‘nother rabbit hole to go down. It was a truly physical market, distributed over an impossible land mass, with people who were learning on the job, in an environment shot through with outright corruption, of counterfeits, serious fraud perpetrated by various actors, in a political environment that was either post or pre-revolutionary, with a shooting war, and rather dramatic daily scenes of violence particularly influencing financial and commodity sectors, which of course were the heart of all the speculation in the first place.

Daniel Satinsky: And so, in the midst of this you were building your normal company, right?

Bernard Sucher: Yes.

Daniel Satinsky: With the idea that you would be a trusted partner in this.

Bernard Sucher: Yeah, so the first…you know, building trust can be a really simple thing, but you’ve got to do it. The first thing we needed to do was to convince ourselves and convince our key employees that this could actually work. My superpower at the time was I was sufficiently naïve and enthusiastic that I was like yeah, we really can build a big investment bank in this environment. Why not? All we’ve got to do is try.

But the people were living in just outrageously uncertain conditions. Anybody who was a citizen of Russia at that time had gone through a trauma that none of us ever want to even really imagine or study at close personal range. They literally, their parents had lost all their savings, their jobs were meaningless, or anyway not paying them money. The kids who were working for us were happy to have $100 a month. And our first job to build trust was to make sure that if we promised them $100 a month, they were going to get it and they were going to get it on time, that we weren’t kidding about that.

Just keeping that promise was a big deal. And if you kept it month in and month out, and we were paying people every two weeks because they needed the money, they needed the cash flow, every time you live up to that simple standard you’re building trust. But until you’ve had an opportunity over a period of time to make the receipt of the promised payroll routine, something that people don’t fret over, that it just becomes part of the background of their life, until you’ve gotten to that point, you’re building trust. When you have gotten there you’ve achieved something. And because we were successful as a business, we were not only able to live up to our promise to pay people on time, we were able to pay them more.

And that’s when it started getting interesting, because now we could begin to employ positive incentives. We could say look, we know that it’s really hard to pick up a bag of cash at 7:30 in the morning in the dark, in the cold, and run this through the privatization office 12 hours later, and have to fill out all these forms with all these mind-numbing numbers and not make a mistake, but if you do this well, we can pay you twice as much. Or if you’re willing to make that trip for three days with minimum security, with a certain amount of money, and go off to this oil town and set up a table, and figure out a way to buy vouchers that are cheaper than what we’re getting at the Moscow exchange in the old post office, then we’ll pay you a bonus for that. And when people are experiencing this dynamic in real time, very intense time, within a year, as our people were, we had built up a pretty motivated, trusting cadre of the bones of what was going to become a successful investment bank in Russia.

Daniel Satinsky: And so about how many people did you employ in that period?

Bernard Sucher: The firm that I joined as an informal advisor in June of 1993 had six or seven people working in it part-time on a daily basis. I believe a year later we were 60 people.

Daniel Satinsky: Sixty, yeah.

Bernard Sucher: And even though many people, maybe most, were still students, we were working very long days five days a week and still meeting on the weekends because we had so much more work to do to build our business.

Daniel Satinsky: And how many foreigners were working in the company at that time?

Bernard Sucher: Troika had at different points, larger numbers of foreigners, but it was always a distinct minority. So, I would say that the firm never had more than 20% of its payroll going to foreign-born, specifically American and British citizens. And part of the mission, part of the value system we had was to build up a true Russian company. We wanted our senior people in particular to be Russian, and we emphasized training people within the firm and recruiting Russians.

That turned out to be the absolute essential quality of our company in 1998 because the financial crash of 1998 was so devastating and so frightening, the potential for very bad things to happen was in everybody’s face, and in general foreigners fled in August, September, October of 1998. Our Russian colleagues had nowhere else to go, and being able to come to work every day knowing that you just had to make the most of this very difficult situation proved to be the crucible that led to Troika becoming arguably the most successful investment bank in the country.

Daniel Satinsky: And so, by 1998 you were working almost exclusively with shares in the Russian stock market.

Bernard Sucher: Shares and bonds, because as the Russian stock market was developing, the government borrowing program also began to develop. It was a top-down venture as well. But unlike the equity markets, which were loosely regulated, and activity was distributed all around the country, the government bond market was highly centralized on what is now the Moscow exchange, MOEX, at that time MICEX, and so the development of the government bond market, basically a short-term discounted bill market, also became an area of an activity for us. Although Troika, leading into 1998, thankfully our revenue mix was probably 80 plus percent equity related, and the remainder being the bond market and merger and acquisition advisory. The crash was centered on the bond market and currency —

Daniel Satinsky: GKOs, right?

Bernard Sucher: That’s correct, GKOs, Gosudarstvennoye Kratkosrochnoye Obyazatyelstvo, short-term, basically T-bills. But because the 1998 crash was centered on a domestic default in the GKO market, and affected immediately the related currency markets, it was particularly devastating to those banks that were major players in that market, and we were a relatively minor player, both in absolute terms and relative to the rest of our activity. And that was also a vital factor in helping Troika not just survive 1998 but emerge from that crisis as one of the stronger domestic financial players.

Daniel Satinsky: So just out of curiosity, were you suspicious of those short-term bonds, or was it an accident that you weren’t sort of invested in them, or did you have some insight that you felt —

Bernard Sucher: Well, I’d say the accident was baked into the ownership structure of Troika Dialog and Dialog Bank. The accident was that in order to be a dealer in GKOs, in other words to have a seat on the exchange where the government bonds were being issued and trading, you needed to be a commercial bank. Dialog Bank was a commercial bank. Troika Dialog was an investment company. They’re regulated quite differently by different bureaucracies, and these two regulatory bureaucracies were effectively rivals of each other. And this was a very lucrative business in the early days of the GKO market. Dialog Bank understandably wanted to keep that business to itself, and Troika was left with the equity market. So that was the essential accident.

Were we interested in it? Yes. But we also had a…we followed a general principle, at that time, that everybody understood that the laws were inadequate, not comprehensive, often contradictory. But our principle was that if we understood the intent of the law, what we believed to be the purpose of the government in enacting a policy or law, that we were going to observe that principle, we were going to act as if the laws faithfully reflected that principle.

So the major buyers, in terms of absolute dollar terms of the GKOs that were being issued by the Russian government—remember, the yields on these things could be 80 to 200%, depending on how you bought them, what the trading conditions were at the time, and your access, so naturally hedge funds that were other players in the U.K. and the United States, they were very eager, understandably, to get access to these high nominal yields. But the Russian government had set up this program in concert with the United States government, and I think also with the German government, for—it was meant to be a purely domestic affair. Foreigners were not supposed to participate in the GKO auctions. And so, Troika understood, Troika Dialog understood that that was the government view, and when we were approached to work out a structure that would assist foreign buyers in accessing that market, we refused to do it because it violated this principle of trying to support the authorities as they struggled to regulate the free market.

In fact you and I haven’t talked about this, but the most well-known episode in our refusal to participate in the GKO market was when this group centered around Harvard University tried to — well, ultimately they succeeded in speculating in these securities, even though they were not supposed to, but we were approached by them to set up a structure, and we said no. They found someone else to set up the structure and eventually they were punished for it.

Daniel Satinsky: That was the federal government sued them for fraud, if I’m not mistaken.

Bernard Sucher: Yes.

Daniel Satinsky: Yeah. I know you’ve talked about this. There was a set of people who were expats who came to Russia to set an ethical standard, a standard of business, but you’ve also said not everybody, not just Russians violated those standards, but foreigners also sometimes just sort of went with the flow as the wild West. And it must have been some kind of a tension for you and the people that you were associated with. I don’t know if that’s something you want to talk about or not, but I’m just curious if you’d, in reflecting back on that.

Bernard Sucher: I mean, it’s the nature of, I think, it’s the nature of this kind of romanticism that accompanied the fall of communism in Eastern Europe that the young people were going to be the ones who embraced the opportunity more than anyone else. And pretty much by definition young people, lacking life experience, are just not as well prepared for some of the challenges that they’re going to face, and that includes ethical and moral challenges. And peer pressure is infamously powerful, and in an environment where the only thing that matters is money, and where your time horizons are reduced literally to a day, like I don’t know what’s going to happen tomorrow, so I’ll worry about it tomorrow, I’m not going to worry about it now, that’s a prescription on one hand for a lot of fun, but it’s a prescription or a predicate for a lot of poor behavior, and that’s what we had in Russia.

I think most people went for an experience, or they went to make a lot of money. And there’s nothing wrong with either of those. But the intersection of a lot of young Americans going over there to make a lot of money or to have an experience with a very nationalistic population that had just suffered and was suffering unimaginable humiliation and just this profound dislocation from what they thought of as normal life, that’s a bad mix, bad mixture. And as I said, I went over to Russia to be helpful. I worked at Goldman Sachs. You didn’t leave Goldman Sachs to go anywhere else in the world to make money. You stayed at Goldman Sachs.

Daniel Satinsky: [Laughs.] Yeah.

Bernard Sucher: Silicon Valley wasn’t quite a thing yet. So I went over on the basis of a sense of very American idealism, that this was an opportunity for us to help do something similar to — for — depends on who you are, I guess, but to or for a population of a country that had been our adversary that was in really rough shape, and they needed to find a new way forward, and I thought I could help them do that. So for me it was central to my purpose, and doing everything that we did is that we were going to do things in a quality way, we were going to do things in a public and transparent way, we were going to set an example for our people, for our customers, and for the wider society, and government regulators, like this is how you do this thing, this is how you do business, this is how you do it right.

And when we ran into competition that wasn’t behaving that way, on one hand we were kind of like long-term greedy. We said okay, but sooner or later people are going to recognize the quality of what we’re doing and we’ll be better off for this as a business. Other people, you know, the people who cut corners or had poor standards would pay a price sooner or later. That was our attitude. Is that arrogant, prudish? It was just the way we were doing our business.

And did our competitors in financial markets leave ethical standards trampled in the dust in a hurry to make money? Yes, every day, outrageously. And the more illustrious names were more often than not the worst abusers. They had bigger opportunities than others to make money unethically. And not necessarily illegally because again, the legislative base and the regulatory environment were not well formed, or unclear.

So to give simple examples, in conditions of a stock market where stocks are very illiquid, meaning if you come in as a buyer you’re probably going to push the price up, or if you come in as a seller you’re going to push the price down, knowing that money is coming one way or another is essential information, if you are able to act on it. So, if you’re a broker and you have behind you purchase orders from large British or American institutions to buy stock, well, probably the price of that stock is going to rise because of that demand. And if you’re sitting on a trading desk at a firm in Moscow and you know your company has that order, or one of your buddies has told you that they have that order from another company, and let’s go out and set up an account and buy this stock because we know the price is going to be supported, that’s front running, and that’s illegal in the United States. It wasn’t always illegal in the United States, but I think it’s always unethical, at least in my view.

Did that sort of thing happen at Troika? Yes. And when we found out we fired people. It doesn’t mean we found all the people that did that sort of thing at Troika Dialog, but when we did find out that people were front running, we fired them. I don’t know of anybody getting fired for front running at any of our competitors. It was a well-entrenched benefit for people in the market, and that included all of our more illustrious competitors, including Western organizations. I hated it. I hate thinking about it now. I think we just should have done better. And all these folks got away with it.

Daniel Satinsky: Yeah.

Bernard Sucher: And I don’t like that. I never will. And that’s one element of it, but there’s much more. And there was outright corruption and bribery in privatization auctions. I mean, I could go on. But I think the main point is that the source of this corruption, from what I saw, was mostly Westerners acting corruptly and initiating this kind of stuff. Not that Russians were angels, but the Russians didn’t have the means at the time to really play on that level.

Daniel Satinsky: Well, I don’t want to end on a negative note, but you did, I’d say, in answering that question, you kind of gave your positive answer at the beginning. And there’s so many things that we could talk about, about the 1998 crisis, the difference between an expectation that the stock market was going to be more important than bank capital that didn’t come true, so many different things. But I just, unfortunately we don’t have time. And I would encourage people who are listening to this to sort of look at things maybe that you’ve written, and others, because it’s such an important topic, the development of a financial sector from nothing to being and still being a part of the Russian economy. So I don’t know if you have any sort of closing thoughts that you want to add to this, but I’m going to give you that opportunity if you do.

Bernard Sucher: Well, you’d begun, Dan, by saying that this was a development of a financial industry on the basis of really no predicate. There was no formal saving system, there was no real pension system. Money as a unit of account, there wasn’t an industry in Russia. And despite everything that has happened, particularly over the last, say, 15 years or so, in the Russian political economy, the sophistication of domestic financial markets, the general excellence of the Russian regulatory regime, set in a regrettable and often evil political framework, but narrowly defined, the way the financial system is run now has got to be counted as an accomplishment, as a step forward in the development of a more competitive, more reliable economy for the people of Russia.

And I’m not going to say that I’m proud to have played a part in that development, because what we have today is something to truly regret, but we don’t measure the lives of countries in the context of a single person’s career, and I still like to think of myself as a young man. It’s possible I’ll live long enough to see the arc of what we started bending into a zone where it meets a healthier society and a country that exists in some meaningful way more for the welfare of its own people and its neighbors than the one we have today. I’d love to see that day. And if it does come, well, it’s very clear that what we did in the ‘90s was a central foundation building for that.

Daniel Satinsky: Yeah, yeah. Well, good. I will end there. And I want to thank you for sharing all this. You were there at the foundation of so much, and the history of that period, so I thank you for sharing it with me, and through me with the archive. Thanks very much.

Bernard Sucher: My pleasure.