About
Peter Derby is currently a private investor managing personal funds invested in real estate and the capital markets. After founding Troika Dialog in 1991, he served as President and CEO of the company from 1991 to 1996 and Chairman from 1996 to 1997. He served as DialogBank’s first CFO in 1990 and was then elected President and CEO from 1991 to 1997 and Chairman from 1997 to 1998.
In the fall of 1990, Peter joined Gregori Yavlinsky’s “500 Day Plan” working group to draft key legislation for a transition to a market economy. That legislation included the Presidential Decree No.601 on December 25, 1990, for Joint Stock Company.
He was a founding member of the Board of MICEX and of the Expert Council for the Federal Commission on Securities of the Russian Federation. He was also a member of the Board of Directors of the American Chamber of Commerce, Russia; a member of the Antimonopoly Committee for the Protection of Consumer Rights; a member of the Hard Currency Controls and Regulations Committee of the Central Bank of Russia; and a member of the Finance Ministry’s Capital Markets Committee.
Mr. Derby earned his BA in 1983 from New York University, where he majored in accounting, finance, and international finance.
In the fall of 1990, Peter joined Gregori Yavlinsky’s “500 Day Plan” working group to draft key legislation for a transition to a market economy. That legislation included the Presidential Decree No.601 on December 25, 1990, for Joint Stock Company.
He was a founding member of the Board of MICEX and of the Expert Council for the Federal Commission on Securities of the Russian Federation. He was also a member of the Board of Directors of the American Chamber of Commerce, Russia; a member of the Antimonopoly Committee for the Protection of Consumer Rights; a member of the Hard Currency Controls and Regulations Committee of the Central Bank of Russia; and a member of the Finance Ministry’s Capital Markets Committee.
Mr. Derby earned his BA in 1983 from New York University, where he majored in accounting, finance, and international finance.
Peter Derby: Good morning.
Daniel Satinsky: Good morning, good morning. How are you?
Peter Derby: Doing okay.
Daniel Satinsky: Good. I realized I probably should have sent you a reminder.
Peter Derby: Oh, no-no. You didn’t need to. I was on there. I just have…I’m on a board. We’re getting our earnings call, trying to get all the stuff ready for it, so our 9:00 went a little longer than I thought, so anyway, sorry about that.
Daniel Satinsky: No problem. So, last time we talked a lot about the more general policy issues, and the idea of this call was that you were going to talk about Peter and what you’ve done. Can you just—so I’ve looked online some about you, and it always, it says you’re from a Russian background. Is that true? Your family, you have a family background from Russia?
Peter Derby: I do; I do. I have a family background from Russia. My grandparents were from the Russian Ukrainian border, right where all the conflict is today actually. They were from a city north of Kharkov called Sumy, and then during what was called the “raskulachka”, which is when Stalin pushed collectivization and tried to beat up on all of the farmers and independent kind of businesses and throw everybody into Siberia, they were thrown into Siberia. Then they came out of those labor camps in the ‘30s back to Kharkov, which is the main city there, and they lived in the southern part of the city, Yuzni Poselok it’s called in Kharkov. And so, they stayed there right through World War II.
And then when the Germans came through, you had two choices: you either fight the Germans or most people welcomed the Germans with flowers because they wanted to get rid of the communists, and the Germans went past, so they let the Germans through. But the Germans, at the same time, said two things: one, we’re worried about you at our backs because maybe you let us through and then attack us from behind. And No. 2, if we were to retreat, Stalin is going to kill all of you for not fighting us because you let us through, and so many people, including my grandparents, then fled by just horse and wagon, buggy, with whatever belongings they had over into German displaced persons camps outside of Munich.
And they were in, I think, Pershing 1 or Pershing 2. There were two camps there. I’m not sure which one. I think Pershing 1 maybe they were in. Anyway, and so they stayed there for the remainder of the war. And then, of course, Stalin did complain that people who let the Germans through to begin with and sent them out to Siberia a second time. But my grandparents were already in Germany, and they stayed there for about four or five years, until after the war, and then they were distributed around the world based on their skills.
So, my grandfather’s family was a merchant family, which is why the communists executed them at the time and Stalin put them in the gulags as a merchant family. But my grandfather also knew very well horses and farming and so on because that was just part of life in general, right, just like even now in Russia everybody has their little hundredth of an acre of garden for them to do potatoes and stuff. So, anyway, so they applied based on this process. I think the UN ran it or somebody ran it. Anyway, they applied and got a two-year workmanship/sponsorship at a place up in Binghamton, New York, a horse farm up in Binghamton, New York. So, they came to that area.
They were up there for the two years and then they were offered a full-time job to stay there. But my grandfather’s friends were in Brooklyn, New York, and so he said no, and he moved the family down to Brooklyn, where most of the immigrants worked at a match factory in Long Island City. So, he worked at the match factory, my grandmother as well. Then my grandmother became a housemaid, ironing, cleaning houses and so on. But in that match factory, interesting enough, so was the first generation of aristocracy that fled the revolution was working, and now the second wave of immigrants that fled World War II are working side-by-side next to former princes and princesses and regular laborers. So, anyway, so that’s…so yes, they came that way.
Daniel Satinsky: And so, did you speak Russian at home?
Peter Derby: So, I grew up only speaking Russian at home because my grandfather worked, my mother worked. My grandfather then, at that point when I was born, they moved from Brooklyn into Jamaica, Queens and my grandfather was a janitor with Kinney Cleaning Company, where he would go in late afternoons and clean office buildings till late at night, come home at 1:00 in the morning. And my mother was a good stenographer and typist, and so she worked for a company called Crane & Co. on Park Avenue and 48th Street or 50th Street or so, and that company, she was, for the CFO, the secretary-typist for financial statements and stenography for the CFO, and that’s what she did.
So, she was working, my grandfather was working, so my grandmother was really who brought us up. And all my value set is based on Grandmother’s wisdom. And she was a kind, wise woman. And so, we only spoke Russian at home. She spoke Ukrainian and a bit of Polish with my grandfather sometimes, I guess when they didn’t want us to know something, but the language is too close, so sometimes they’d switch to a little Polish I guess they knew. But by and large it was Russian at home.
And then I have an older brother, one year older, George, and a younger brother, Witaly, one year younger, so there’s three of us, a year apart. And my parents were divorced when we were like two or three years old, so I didn’t really know my father. And so, we were with my grandmother. And then George went to kindergarten, and he started to bring some English words home, so we started learning a little bit of English. My grandparents sent us to the Russian school on Saturdays. I think we were four or five when we started that school. It was a church school where you learned the Russian language, grammar, literature, geography, history and religion. And so, I did that probably for 10 or 11 years. I think I was like 15, 16 when I graduated from there.
We did it every Saturday, so we used to kind of complain. The kids were playing baseball, and we were going off to Russian school. And Sunday was church, so both Saturday and Sunday mornings, from 7:00 till 1:00, were all taken up, so we just had Saturday and Sunday afternoons to have fun. But it was good. I mean, you know, my grandmother used to say cry, cry all you want, but you’re going to really appreciate knowing the language. And of course, going to Russia in my 20s, heck yeah, I appreciated it. Otherwise, I would not have done and had the success I did have.
Daniel Satinsky: Absolutely.
Peter Derby: And her value set, you know what I mean? We learned a lot being home with her. My brother George, even though he knew no English, and neither did I, but he became the spelling bee champion in sixth grade, so within six years he was the No. 1 spelling bee champion. He was valedictorian of our school. He was valedictorian of our junior high school. He went to Stuyvesant High School for gifted kids, was salutatorian there, so, you know, he did pretty well. And then for us to follow in his footsteps kind of opened the road, because everyone thought we were as smart as him. Not exactly, but that’s what they thought, so it gave us a lot of credibility anyway. So, that was my…
Daniel Satinsky: And then when you, as you were growing up, I mean, obviously the Soviet Union was closed. You weren’t thinking about having a career related to the heritage, were you?
Peter Derby: No, not a career at that time. When my brother graduated valedictorian in sixth grade my mother said I want to reward you with such hard work and take you on an international trip, kind of a reward, a sixth-grade reward, he got so many medals and accolades and stuff. So, she took him to London and Paris, and Rome I think it was, London, Paris and Rome. I think she wanted to see the world, too. They saved up a bunch of money. It wasn’t easy to do, but they did it. And in 1968 her best friend’s mother worked as an interpreter at the UN, and in 1968 she was able to take her daughter and my mother on a trip to the Soviet Union.
Daniel Satinsky: Wow.
Peter Derby: As part of the UN. And at that time my mother tried and was able to find some of my grandparents’ relatives still in different cities, one in the southern part of Ukraine, one in Minsk, another one in Siberia. So, anyway, they were able to kind of locate them. But when I graduated the next year later—and I got some pretty good awards, too, but not valedictorian, as my brother. So, my mother said okay, let’s make it a little tradition, where do you want to go? And I said well, I don’t know, where do you want to go? She said I’d like to go back to Russia.
So, I went with her. She took me on that trip in 1971. So, I went to the Soviet Union to meet relatives in Moscow. Then we went to Kiev to meet relatives. Then we decided to have our own little couple of days in Yalta and Sochi as kind of a vacation thing just to see the place. And then we went up to St. Petersburg. And so, we met several relatives, family there—my grandmother’s brother in Minsk, my grandmother’s other brother in Kharkov, and they connected with other relatives, so we got addresses, phone numbers and things like that. So, I was there. I saw the Soviet Union. I saw everybody following us everywhere we went and all the army guns and all that baloney stuff there. Then in 1981 I, at NYU, took a semester off and became the road manager, tour manager for a rock group, and that rock group—
Daniel Satinsky: Which group?
Peter Derby: —was Mitch Ryder and the Detroit Wheels. So, when I joined NYU freshman year you have to choose some committees you want to volunteer at. So, I thought what am I really interested in. I wasn’t really joining the finance club and accounting club right away, so I joined the concert club, and we brought in several bands. We brought B-52s’ first ever to New York concert, the Go-Go’s, the girls, the Go-Go’s we brought. Then they played the Palladium and the Garden and all that, but we found them, and we brought them up there. And we also brought James Brown back and Mitch Ryder and the Detroit Wheels back. Those were kind of older known names, but we thought they were restarting, rekindling, and so we brought them in.
And I became friends with Mitch Ryder’s manager, and he said, “Hey, you jokingly say join the Navy, see the world, but really join a rock band, you’ll see the world, why don’t you take a semester off and help me run this tour, we’re going to do a U.S.-European tour”. Okay, so I did it. Took a semester off, did this U.S. tour and the European tour. And when we were in Germany Mitch Ryder said, “Hey, you know something about Russia and the Russian language, let’s jump on a plane and go to Moscow, I want to see the place”. And I was like are you kidding? What are you going to do? He goes, “I’m just going to go to Red Square and belt out “Good Golly Miss Molly” right there with just my voice”. And I said, “right and get us all arrested doing it”. So, I kind of reopened thinking about Russia a little bit at that time, the Soviet Union. And we didn’t do that. I didn’t want to get him arrested or us get arrested, so we didn’t, we just finished the European tour.
And then I’m graduating now, and as I’m graduating, I’m thinking okay, I have the career counselor who was amazing and getting us in all these interviews, but who’s going to help me understand all my job choices? And I actually was fortunate to get numerous job opportunities, but there wasn’t really anybody to go to. So, I go to my mother, and my mother’s like well, you know, we don’t talk business in the Russian community. We’ll talk literature, we’ll talk history, we’ll talk art, we’ll talk ballet, we’ll talk opera, maybe medicine, maybe math, chemistry, physics, but that’s about it. So, I thought okay, we have a void here, and that’s called networking. And so, I mentioned it to a couple of friends and they said you know, that’s life. So, I graduate, I took a job on Wall Street on my own. But it annoyed me that that was the case.
So, I saw another fellow on Wall Street, a Russian fellow, this guy Micky Galitzine. He was working at The Bank in New York, and I said how did you choose this? He goes it was by luck. I had a friend that was working here, a neighbor who said why don’t you come work here. I said yeah, but when I was there, I didn’t even know you existed. I didn’t even know you worked at a bank. I knew you in church as an altar guy, but I had no idea you were a banker. I could have asked you some questions that would maybe help me figure something out. And he’s like you’re right, we don’t have that. And I said why don’t we? He goes okay. And this other guy Nikita Nazaroff, who was a real kind of an instigator kid, a really good guy, and he said okay, the two of you, why don’t we start something?
So, I started and founded the Russian American Professional Club. And the three of us were the first ones to start it. I wrote the charter for it, which I took out of my NYU finance club charters and stuff. Because I was on the finance committee later in my junior and senior year at NYU. I was on the finance committee, the accounting committee, Beta Alpha Psi and all those. Anyway, so I took that, I wrote the charter, got an emblem. Tanya Flynn helped create a really cool emblem, Russian traditional looking emblem, and we created the Russian American Professional Club. And this club, we started to invite people, any profession—ballerina, literature writer, doctor, dentist, professional athlete, I didn’t care. You would just call yourself a professional, you’re part of the club. We needed to bring networking together.
And we started to do dinners, quarterly dinners, and I got the Whitehall Club down in New York to really give us a great price, and I invited some people that I knew. So, one of our first speakers was Paul Volcker. He was Fed chair. So, he came in and he’s like okay, I can explain to you the importance of networking, the importance of finance and things. I had George Gould, Deputy Secretary of the Treasury, come in. It turns out one of our member’s dad was an inventor in the military that invented the stealth technology and invented some of the rockets, some of the most advanced U.S. military rockets, and how he went out on these test runs, even using his car, sticking things out the window with his hands to see how dynamics work and stuff. And we didn’t even know that. Like we didn’t even know because nobody talked about these things. So, we invited them to these dinners, and our club got to about 700 people.
Daniel Satinsky: 700?
Peter Derby: 700—Toronto, Boston, Philadelphia, New York, Atlanta, San Francisco. There was a big group out in San Francisco. Chicago. So, we had like seven cities. And so we would do these quarterly meetings, and then each city started to do their quarterly meetings. And we’d send out—we then put together a brochure of our quarterly meeting and we would then send it to the other cities so that they would share it, and it became this kind of thing.
So, through that process I was also helping, I was an assistant to a professor at NYU in real estate finance. And that professor in real estate finance, who was my professor when I was at NYU in undergraduate, I wanted to be an investment banker. I wanted to be a doctor of capital structure. To me accounting is the language of business, so you need to understand the language of business, language of finance, it’s accounting. I didn’t want to be an accountant, but I wanted to speak the language, so I had an accounting degree and I had some auditing original background because I wanted to learn through audit how everything needs to be done correctly, because auditing is when you review people and whether they did it to the right standards or the best standards, so why not learn the standards that are best by being an auditor first and then going off and doing it.
So, I was learning accounting, the language of business, language of finance, auditing to know how it should be done right already and then moving on to doing it. So, finance was my second major, and international finance, because money is fungible, so I triple majored at NYU and pretty much did my first year MBA. And they said are you going to finish up your last two semesters, and I said no, I’m going to go see the real world and then I’ll come back and decide which concentration my last two semesters I want, whether it’s markets and trading, whether it’s investment banking, whether it’s real estate finance, what do I really want to do in life.
So, I never came back in the end because I went to Russia and never came back. But in learning finance I was having a hard time with the concept of widgets. It turns out I’m a dyslexic. I didn’t realize that until many years later. But widgets to me was not tangible. And my roommate at the time said Peter, you’re going to fail out of what you want to do in life, you need to move into the real estate finance class, because when we go to dinners a couple of times you tell me your grandfather, to help survive, bought a house down the block and rents it, and that’s what real estate finance is. You’re a tangible, you need to touch it, feel it. You know what a house is, you know what a rent is, you know what electric expense is. You’ve got to move your finance education quickly into the real estate class, otherwise you’re going to fail out in your widgets because nothing makes sense to you.
And he was right. And the dean allowed me to do that. And so, I was so thankful to my roommate and this professor that I said to this professor I’ll help you out. Because I ended up getting an A plus. I got perfect grades in the class. Everything came together. And he said great, Peter, why don’t you become my assistant, we teach the Harvard case study course, which is what I took, and why don’t you be the grunt helping the assistant professor with students that need additional focus on the case studies, and then I’ll teach the theory, you teach the actual case examples, and that’s how we’ll work. So, I did it for a few years as I’m working on Wall Street to keep up my credit skills and in a way to thank him for doing it. Plus, NYU graduate program was down on Trinity Place, which is a few blocks from where I worked anyway. So, I did that.
That professor was friends with a Washington lobbyist who was also the lobbyist for Ted Turner. And he was friends with this lobbyist, and he wanted to become, actually, this professor wanted to become Secretary of Education in the ‘80s under George H.W. Bush. So, he became not only friends with him, but was kind of getting him to help him potentially meet the right people for that kind of consideration.
So, that lobbyist said to him Ted Turner is opening up CNN in Moscow, and he’s trying to do this program there with CNN, and he has a friend in Chicago by the name of Joe Ritchie who wants to go over and create the first Soviet-American joint venture or do something to help create a bridge between these two nuclear powers. He’s got 13 kids. He doesn’t want the world to come to an end in a nuclear catastrophe, so he’s going over there to do it. And anyway, they had this discussion. So, Joe ended up going there, uses Ted Turner’s apartment, and his interpreters, and so this lobbyist—
Daniel Satinsky: What year was this?
Peter Derby: Probably 1987-88.
Daniel Satinsky: Okay, and this is also when these Space Bridges and exchanges are going on, so there’s a kind of a general movement—
Peter Derby: Right. Apollo, all that stuff is happening, yes, exactly. And perestroika is going, glasnost is going and all that. And so, this lobbyist tells Paul Pilzer, my professor, that this is what actually did happen. Remember I was telling you about this guy, he was doing all these things? Well, now he actually did it. He went over there, he started this thing, but now he needs help to figure out how to really move forward. He met these people, shook hands, started a first joint venture, but now he’s got to, you know, he doesn’t have anyone to really do this.
So, Paul said, hey listen, my assistant professor here Peter, my student, my former student who’s helping me, he’s actually president of the Russian American Professional Club. I spoke at his club with quite a number of people in New York alone that were there, about 75 people in New York, but his network is pretty big around the country, and he speaks Russian himself and understands business finance, pretty nice, smart guy, plus he was just last year in Moscow and St. Petersburg with Billy Joel as the Russian tour manager for Billy Joel’s tour.
Because during the concert time, when I was at NYU, part of my financial aid, I had to have a job, so I actually decided to double up on concerts, and I worked for Ron Delsener, who was the concert promoter in New York, because I figured the concert committee, the concert promoter, I might as well get better contacts to bridge both of those pastimes, or work efforts. So, part of my financial aid program was I had to work, so I got this job, and I did numerous concerts with Billy Joel. His manager knew that I spoke Russian, too, and called up and said would you be our interpreter, Russian tour manager. And the real—
Daniel Satinsky: Good morning, good morning. How are you?
Peter Derby: Doing okay.
Daniel Satinsky: Good. I realized I probably should have sent you a reminder.
Peter Derby: Oh, no-no. You didn’t need to. I was on there. I just have…I’m on a board. We’re getting our earnings call, trying to get all the stuff ready for it, so our 9:00 went a little longer than I thought, so anyway, sorry about that.
Daniel Satinsky: No problem. So, last time we talked a lot about the more general policy issues, and the idea of this call was that you were going to talk about Peter and what you’ve done. Can you just—so I’ve looked online some about you, and it always, it says you’re from a Russian background. Is that true? Your family, you have a family background from Russia?
Peter Derby: I do; I do. I have a family background from Russia. My grandparents were from the Russian Ukrainian border, right where all the conflict is today actually. They were from a city north of Kharkov called Sumy, and then during what was called the “raskulachka”, which is when Stalin pushed collectivization and tried to beat up on all of the farmers and independent kind of businesses and throw everybody into Siberia, they were thrown into Siberia. Then they came out of those labor camps in the ‘30s back to Kharkov, which is the main city there, and they lived in the southern part of the city, Yuzni Poselok it’s called in Kharkov. And so, they stayed there right through World War II.
And then when the Germans came through, you had two choices: you either fight the Germans or most people welcomed the Germans with flowers because they wanted to get rid of the communists, and the Germans went past, so they let the Germans through. But the Germans, at the same time, said two things: one, we’re worried about you at our backs because maybe you let us through and then attack us from behind. And No. 2, if we were to retreat, Stalin is going to kill all of you for not fighting us because you let us through, and so many people, including my grandparents, then fled by just horse and wagon, buggy, with whatever belongings they had over into German displaced persons camps outside of Munich.
And they were in, I think, Pershing 1 or Pershing 2. There were two camps there. I’m not sure which one. I think Pershing 1 maybe they were in. Anyway, and so they stayed there for the remainder of the war. And then, of course, Stalin did complain that people who let the Germans through to begin with and sent them out to Siberia a second time. But my grandparents were already in Germany, and they stayed there for about four or five years, until after the war, and then they were distributed around the world based on their skills.
So, my grandfather’s family was a merchant family, which is why the communists executed them at the time and Stalin put them in the gulags as a merchant family. But my grandfather also knew very well horses and farming and so on because that was just part of life in general, right, just like even now in Russia everybody has their little hundredth of an acre of garden for them to do potatoes and stuff. So, anyway, so they applied based on this process. I think the UN ran it or somebody ran it. Anyway, they applied and got a two-year workmanship/sponsorship at a place up in Binghamton, New York, a horse farm up in Binghamton, New York. So, they came to that area.
They were up there for the two years and then they were offered a full-time job to stay there. But my grandfather’s friends were in Brooklyn, New York, and so he said no, and he moved the family down to Brooklyn, where most of the immigrants worked at a match factory in Long Island City. So, he worked at the match factory, my grandmother as well. Then my grandmother became a housemaid, ironing, cleaning houses and so on. But in that match factory, interesting enough, so was the first generation of aristocracy that fled the revolution was working, and now the second wave of immigrants that fled World War II are working side-by-side next to former princes and princesses and regular laborers. So, anyway, so that’s…so yes, they came that way.
Daniel Satinsky: And so, did you speak Russian at home?
Peter Derby: So, I grew up only speaking Russian at home because my grandfather worked, my mother worked. My grandfather then, at that point when I was born, they moved from Brooklyn into Jamaica, Queens and my grandfather was a janitor with Kinney Cleaning Company, where he would go in late afternoons and clean office buildings till late at night, come home at 1:00 in the morning. And my mother was a good stenographer and typist, and so she worked for a company called Crane & Co. on Park Avenue and 48th Street or 50th Street or so, and that company, she was, for the CFO, the secretary-typist for financial statements and stenography for the CFO, and that’s what she did.
So, she was working, my grandfather was working, so my grandmother was really who brought us up. And all my value set is based on Grandmother’s wisdom. And she was a kind, wise woman. And so, we only spoke Russian at home. She spoke Ukrainian and a bit of Polish with my grandfather sometimes, I guess when they didn’t want us to know something, but the language is too close, so sometimes they’d switch to a little Polish I guess they knew. But by and large it was Russian at home.
And then I have an older brother, one year older, George, and a younger brother, Witaly, one year younger, so there’s three of us, a year apart. And my parents were divorced when we were like two or three years old, so I didn’t really know my father. And so, we were with my grandmother. And then George went to kindergarten, and he started to bring some English words home, so we started learning a little bit of English. My grandparents sent us to the Russian school on Saturdays. I think we were four or five when we started that school. It was a church school where you learned the Russian language, grammar, literature, geography, history and religion. And so, I did that probably for 10 or 11 years. I think I was like 15, 16 when I graduated from there.
We did it every Saturday, so we used to kind of complain. The kids were playing baseball, and we were going off to Russian school. And Sunday was church, so both Saturday and Sunday mornings, from 7:00 till 1:00, were all taken up, so we just had Saturday and Sunday afternoons to have fun. But it was good. I mean, you know, my grandmother used to say cry, cry all you want, but you’re going to really appreciate knowing the language. And of course, going to Russia in my 20s, heck yeah, I appreciated it. Otherwise, I would not have done and had the success I did have.
Daniel Satinsky: Absolutely.
Peter Derby: And her value set, you know what I mean? We learned a lot being home with her. My brother George, even though he knew no English, and neither did I, but he became the spelling bee champion in sixth grade, so within six years he was the No. 1 spelling bee champion. He was valedictorian of our school. He was valedictorian of our junior high school. He went to Stuyvesant High School for gifted kids, was salutatorian there, so, you know, he did pretty well. And then for us to follow in his footsteps kind of opened the road, because everyone thought we were as smart as him. Not exactly, but that’s what they thought, so it gave us a lot of credibility anyway. So, that was my…
Daniel Satinsky: And then when you, as you were growing up, I mean, obviously the Soviet Union was closed. You weren’t thinking about having a career related to the heritage, were you?
Peter Derby: No, not a career at that time. When my brother graduated valedictorian in sixth grade my mother said I want to reward you with such hard work and take you on an international trip, kind of a reward, a sixth-grade reward, he got so many medals and accolades and stuff. So, she took him to London and Paris, and Rome I think it was, London, Paris and Rome. I think she wanted to see the world, too. They saved up a bunch of money. It wasn’t easy to do, but they did it. And in 1968 her best friend’s mother worked as an interpreter at the UN, and in 1968 she was able to take her daughter and my mother on a trip to the Soviet Union.
Daniel Satinsky: Wow.
Peter Derby: As part of the UN. And at that time my mother tried and was able to find some of my grandparents’ relatives still in different cities, one in the southern part of Ukraine, one in Minsk, another one in Siberia. So, anyway, they were able to kind of locate them. But when I graduated the next year later—and I got some pretty good awards, too, but not valedictorian, as my brother. So, my mother said okay, let’s make it a little tradition, where do you want to go? And I said well, I don’t know, where do you want to go? She said I’d like to go back to Russia.
So, I went with her. She took me on that trip in 1971. So, I went to the Soviet Union to meet relatives in Moscow. Then we went to Kiev to meet relatives. Then we decided to have our own little couple of days in Yalta and Sochi as kind of a vacation thing just to see the place. And then we went up to St. Petersburg. And so, we met several relatives, family there—my grandmother’s brother in Minsk, my grandmother’s other brother in Kharkov, and they connected with other relatives, so we got addresses, phone numbers and things like that. So, I was there. I saw the Soviet Union. I saw everybody following us everywhere we went and all the army guns and all that baloney stuff there. Then in 1981 I, at NYU, took a semester off and became the road manager, tour manager for a rock group, and that rock group—
Daniel Satinsky: Which group?
Peter Derby: —was Mitch Ryder and the Detroit Wheels. So, when I joined NYU freshman year you have to choose some committees you want to volunteer at. So, I thought what am I really interested in. I wasn’t really joining the finance club and accounting club right away, so I joined the concert club, and we brought in several bands. We brought B-52s’ first ever to New York concert, the Go-Go’s, the girls, the Go-Go’s we brought. Then they played the Palladium and the Garden and all that, but we found them, and we brought them up there. And we also brought James Brown back and Mitch Ryder and the Detroit Wheels back. Those were kind of older known names, but we thought they were restarting, rekindling, and so we brought them in.
And I became friends with Mitch Ryder’s manager, and he said, “Hey, you jokingly say join the Navy, see the world, but really join a rock band, you’ll see the world, why don’t you take a semester off and help me run this tour, we’re going to do a U.S.-European tour”. Okay, so I did it. Took a semester off, did this U.S. tour and the European tour. And when we were in Germany Mitch Ryder said, “Hey, you know something about Russia and the Russian language, let’s jump on a plane and go to Moscow, I want to see the place”. And I was like are you kidding? What are you going to do? He goes, “I’m just going to go to Red Square and belt out “Good Golly Miss Molly” right there with just my voice”. And I said, “right and get us all arrested doing it”. So, I kind of reopened thinking about Russia a little bit at that time, the Soviet Union. And we didn’t do that. I didn’t want to get him arrested or us get arrested, so we didn’t, we just finished the European tour.
And then I’m graduating now, and as I’m graduating, I’m thinking okay, I have the career counselor who was amazing and getting us in all these interviews, but who’s going to help me understand all my job choices? And I actually was fortunate to get numerous job opportunities, but there wasn’t really anybody to go to. So, I go to my mother, and my mother’s like well, you know, we don’t talk business in the Russian community. We’ll talk literature, we’ll talk history, we’ll talk art, we’ll talk ballet, we’ll talk opera, maybe medicine, maybe math, chemistry, physics, but that’s about it. So, I thought okay, we have a void here, and that’s called networking. And so, I mentioned it to a couple of friends and they said you know, that’s life. So, I graduate, I took a job on Wall Street on my own. But it annoyed me that that was the case.
So, I saw another fellow on Wall Street, a Russian fellow, this guy Micky Galitzine. He was working at The Bank in New York, and I said how did you choose this? He goes it was by luck. I had a friend that was working here, a neighbor who said why don’t you come work here. I said yeah, but when I was there, I didn’t even know you existed. I didn’t even know you worked at a bank. I knew you in church as an altar guy, but I had no idea you were a banker. I could have asked you some questions that would maybe help me figure something out. And he’s like you’re right, we don’t have that. And I said why don’t we? He goes okay. And this other guy Nikita Nazaroff, who was a real kind of an instigator kid, a really good guy, and he said okay, the two of you, why don’t we start something?
So, I started and founded the Russian American Professional Club. And the three of us were the first ones to start it. I wrote the charter for it, which I took out of my NYU finance club charters and stuff. Because I was on the finance committee later in my junior and senior year at NYU. I was on the finance committee, the accounting committee, Beta Alpha Psi and all those. Anyway, so I took that, I wrote the charter, got an emblem. Tanya Flynn helped create a really cool emblem, Russian traditional looking emblem, and we created the Russian American Professional Club. And this club, we started to invite people, any profession—ballerina, literature writer, doctor, dentist, professional athlete, I didn’t care. You would just call yourself a professional, you’re part of the club. We needed to bring networking together.
And we started to do dinners, quarterly dinners, and I got the Whitehall Club down in New York to really give us a great price, and I invited some people that I knew. So, one of our first speakers was Paul Volcker. He was Fed chair. So, he came in and he’s like okay, I can explain to you the importance of networking, the importance of finance and things. I had George Gould, Deputy Secretary of the Treasury, come in. It turns out one of our member’s dad was an inventor in the military that invented the stealth technology and invented some of the rockets, some of the most advanced U.S. military rockets, and how he went out on these test runs, even using his car, sticking things out the window with his hands to see how dynamics work and stuff. And we didn’t even know that. Like we didn’t even know because nobody talked about these things. So, we invited them to these dinners, and our club got to about 700 people.
Daniel Satinsky: 700?
Peter Derby: 700—Toronto, Boston, Philadelphia, New York, Atlanta, San Francisco. There was a big group out in San Francisco. Chicago. So, we had like seven cities. And so we would do these quarterly meetings, and then each city started to do their quarterly meetings. And we’d send out—we then put together a brochure of our quarterly meeting and we would then send it to the other cities so that they would share it, and it became this kind of thing.
So, through that process I was also helping, I was an assistant to a professor at NYU in real estate finance. And that professor in real estate finance, who was my professor when I was at NYU in undergraduate, I wanted to be an investment banker. I wanted to be a doctor of capital structure. To me accounting is the language of business, so you need to understand the language of business, language of finance, it’s accounting. I didn’t want to be an accountant, but I wanted to speak the language, so I had an accounting degree and I had some auditing original background because I wanted to learn through audit how everything needs to be done correctly, because auditing is when you review people and whether they did it to the right standards or the best standards, so why not learn the standards that are best by being an auditor first and then going off and doing it.
So, I was learning accounting, the language of business, language of finance, auditing to know how it should be done right already and then moving on to doing it. So, finance was my second major, and international finance, because money is fungible, so I triple majored at NYU and pretty much did my first year MBA. And they said are you going to finish up your last two semesters, and I said no, I’m going to go see the real world and then I’ll come back and decide which concentration my last two semesters I want, whether it’s markets and trading, whether it’s investment banking, whether it’s real estate finance, what do I really want to do in life.
So, I never came back in the end because I went to Russia and never came back. But in learning finance I was having a hard time with the concept of widgets. It turns out I’m a dyslexic. I didn’t realize that until many years later. But widgets to me was not tangible. And my roommate at the time said Peter, you’re going to fail out of what you want to do in life, you need to move into the real estate finance class, because when we go to dinners a couple of times you tell me your grandfather, to help survive, bought a house down the block and rents it, and that’s what real estate finance is. You’re a tangible, you need to touch it, feel it. You know what a house is, you know what a rent is, you know what electric expense is. You’ve got to move your finance education quickly into the real estate class, otherwise you’re going to fail out in your widgets because nothing makes sense to you.
And he was right. And the dean allowed me to do that. And so, I was so thankful to my roommate and this professor that I said to this professor I’ll help you out. Because I ended up getting an A plus. I got perfect grades in the class. Everything came together. And he said great, Peter, why don’t you become my assistant, we teach the Harvard case study course, which is what I took, and why don’t you be the grunt helping the assistant professor with students that need additional focus on the case studies, and then I’ll teach the theory, you teach the actual case examples, and that’s how we’ll work. So, I did it for a few years as I’m working on Wall Street to keep up my credit skills and in a way to thank him for doing it. Plus, NYU graduate program was down on Trinity Place, which is a few blocks from where I worked anyway. So, I did that.
That professor was friends with a Washington lobbyist who was also the lobbyist for Ted Turner. And he was friends with this lobbyist, and he wanted to become, actually, this professor wanted to become Secretary of Education in the ‘80s under George H.W. Bush. So, he became not only friends with him, but was kind of getting him to help him potentially meet the right people for that kind of consideration.
So, that lobbyist said to him Ted Turner is opening up CNN in Moscow, and he’s trying to do this program there with CNN, and he has a friend in Chicago by the name of Joe Ritchie who wants to go over and create the first Soviet-American joint venture or do something to help create a bridge between these two nuclear powers. He’s got 13 kids. He doesn’t want the world to come to an end in a nuclear catastrophe, so he’s going over there to do it. And anyway, they had this discussion. So, Joe ended up going there, uses Ted Turner’s apartment, and his interpreters, and so this lobbyist—
Daniel Satinsky: What year was this?
Peter Derby: Probably 1987-88.
Daniel Satinsky: Okay, and this is also when these Space Bridges and exchanges are going on, so there’s a kind of a general movement—
Peter Derby: Right. Apollo, all that stuff is happening, yes, exactly. And perestroika is going, glasnost is going and all that. And so, this lobbyist tells Paul Pilzer, my professor, that this is what actually did happen. Remember I was telling you about this guy, he was doing all these things? Well, now he actually did it. He went over there, he started this thing, but now he needs help to figure out how to really move forward. He met these people, shook hands, started a first joint venture, but now he’s got to, you know, he doesn’t have anyone to really do this.
So, Paul said, hey listen, my assistant professor here Peter, my student, my former student who’s helping me, he’s actually president of the Russian American Professional Club. I spoke at his club with quite a number of people in New York alone that were there, about 75 people in New York, but his network is pretty big around the country, and he speaks Russian himself and understands business finance, pretty nice, smart guy, plus he was just last year in Moscow and St. Petersburg with Billy Joel as the Russian tour manager for Billy Joel’s tour.
Because during the concert time, when I was at NYU, part of my financial aid, I had to have a job, so I actually decided to double up on concerts, and I worked for Ron Delsener, who was the concert promoter in New York, because I figured the concert committee, the concert promoter, I might as well get better contacts to bridge both of those pastimes, or work efforts. So, part of my financial aid program was I had to work, so I got this job, and I did numerous concerts with Billy Joel. His manager knew that I spoke Russian, too, and called up and said would you be our interpreter, Russian tour manager. And the real—
Daniel Satinsky: Can I interrupt you? Do you know then Peter Gerwe and Jim Hickman, who were allegedly also involved with this Billy Joel tour?
Peter Derby: They were the official people from the U.S. government State Department program. They were the people that organized it, and HBO supported it, funded it, but they were the ones that were the official government people that did it, yes.
Daniel Satinsky: And then you were working with Billy Joel directly?
Peter Derby: Billy Joel. I was on Billy Joel’s team, yes.
Daniel Satinsky: Okay.
Peter Derby: So, I did that. They had this guy Igor Smirnov who was the Russian interpreter for Billy on the stage, and I was kind of the assistant tour manager under Jimmy Minor, who was the world tour manager that helped him. I interpreted things for him, I did errands for him. I went with Billy Joel into the audience when Billy jumps into the audience, and he runs around. I go with Billy because I speak the language, too, if anyone, you know, to say something. So, yeah, if you see the HBO, you’ll see me in a crazy green with yellow striped shirt out there. Anyway.
So, he tells this to…he basically tells—and most people knew that I was Russian because my grandmother would call backstage at the Palladium Theater for something, rarely, but she would call, and Mike Proscia, the head of the union, would say hey, get that Russian kid. I was the backstage director at the Palladium Theater. There were two people running it: the stage manager and the backstage director, the two of us. And he was like get that Russian kid. Anyway. So, everyone knew I spoke Russian. And I interpreted, actually, Elton John’s U.S.S.A. tour for the stage manager, all the equipment setup, all the stage setup for him, even before Billy’s tour. That was, I think, ’79, early ’79. This was summer of ’87 with Billy Joel.
So, with that they kind of said okay, he did the Elton John, a couple of little things here—I didn’t go there, but I helped them do all the paperwork. And then Billy’s people asked me, and Jim [Hickman], that you mentioned, even called to interview me and said okay, look, you know his show, yes, let’s do this. Because he had to kind of approve the composition of Billy’s team. And since I wasn’t the permanent person on the team, I was kind of a little bit in between, he called me up and said let’s meet for coffee, and so anyway. So, yes, all that went through.
And anyway, so Paul Pilzner said to his consultant in Washington you should really consider Peter Derby. And Joe Ritchie called, and I did meet him, and he said look, I don’t know about your 700 other people, but all I know is I’ve spent with you the day, and before you leave in a few hours on your flight back—because I took like a 6:00 a.m. flight to Chicago, this was maybe 3:00 in the afternoon—and he goes you met already with four of my most important partners, and they all feel you have the personality, and the knowledge, and the language, we just want you to go, not somebody that you’re going to help identify on your team, would you do it.
So, I said well, the good news is I met my investment banking budget already in the first half of the year, so probably my boss won’t give me a hard time on Wall Street, but I have to ask. So, I came back. It was time to talk. I sat down and he said sure, you can do it. Last year you went with Billy Joel, this year you’re going for what, Ben & Jerry’s now? I said well, not exactly Ben & Jerry’s, because they were in the paper with ice cream, but doing the first technology joint venture. So, that’s how I did it. I went there and I—
Daniel Satinsky: What kind of business was Joe Ritchie in?
Peter Derby: He was in charge of Chicago Research & Trade. There were only three option trading companies that were amazing. O’Connor was one of them, Susquehanna the other, and CRT. And this guy could multiply five numbers times five numbers in his head. I mean, he was…I don’t know if he was autistic or whatever, but he was a genius in his own way. I don’t know what it means to be able to do that, but he was quite… And he would take five-minute naps in the middle of the day, like you’d come in he’s just like boom, asleep, wakes up, boom. But he was an interesting fellow, 13 kids. His parents, I think, were missionaries in Afghanistan at some point, and he spent some time there, so he was kind of a worldly thinking guy. He was pretty close to Richard Branson and Steve Fossett, because they all flew planes, and they did that balloon thing where they tried to go around the world, the three of them, in a balloon, and so I think he did the mission control for that balloon trip.
Anyway, he was a very unique person who was extremely soulful and extremely…like no ego, like literally almost no ego, like a human being with no ego, purely brains. So, his mind was not ego. His mind was calculative and his entire being was his heart, how his soul felt. Like when you talked to him it was almost like you were embraced in this cloud of goodwill, you know what I mean? It was kind of an interesting thing, which somewhat made me, when I closed my eyes, felt like it was my grandmother’s value set. It was this real wholesomeness to what he was trying to do. So, anyway, I went over there and literally, like Bill Gates coming, sleeping on the couch that I was on, and this person, because Bill Gates was doing work there with the same group, because it’s the first technology joint venture.
Daniel Satinsky: And the Russian partner was who?
Peter Derby: Oh, the Russian partner was a compilation. So, it turns out that when Joe Ritchie tried to explain his businesses to them when he went over to try to just do something, anything to help and create this bridge, and create a dialogue, he tried to say it’s finance, but it was algorithms and computer-driven, so the only thing the Soviets understood was it was computers and algorithms. They don’t understand the other side. And so, they got him to meet with Moscow University, Kamaz, which is the General Motors of Russia.
Daniel Satinsky: I know Kamaz, yeah.
Peter Derby: And the Ministry of Aerospace, because he was a pilot, all of that. So, in the end the vice director of Kamaz in charge of computer technology, Pyotr Zrelov, was kind of the one that said wow, we can really do something here because we at Kamaz, we need computers, we can’t, there are all sanctions and COCOM against us and everything else, so maybe we can do something where we create software there, we can get computers back, and they can do something. So, he became kind of like the lead Soviet guy out of this concoction of ministries to do things.
And so they kind of shook hands, and the both of them liked each other, and they both became kind of like these two co-CEOs of this new project, and Joe Ritchie said okay, Pyotr, you’re the CEO—the general director, because at that time there was no CEO concept—you’re the general director, you figure it out. So, Pyotr Zrelov, he went and said okay, I’m in Kamaz, so Kamaz could do it, but I need the ministry, so I get the automobile ministry to be my partner, and Moscow University, you were here at the meeting, so why don’t you jump in. The NASA equivalent Aerospace Institute, you jump in. CEMI, the mathematical economics business institute, is as close as business we can understand in this, you jump in. And these are all academics—[Valery] Makarov and [Victor] Sadovnichiy, so you get kind of like this elite group, and it’s all funded by Kamaz. Kamaz became the beneficiary of technology and the funder of this thing from the Russian side, with all these ministries a part of it.
So, the first time I went there you meet with like seven different ministers. They have no idea, probably, what’s going on originally. Anyway, I went over there, and I realized it was heavy technology software, hardware, but my brother worked at Bell Labs, and he was on the team that created the Unix operating system, the one that was valedictorian everywhere, and he was a Cornell electric engineer. Anyway, so I had him come over for a few weeks to Moscow to help me figure out the business plan, because I had this whole business plan. So, he really is the one that drove the original pieces of that business plan, which, by the way, the Russians did a pretty good job on, and he helped them with, and to lay out that. So, that was the—
Daniel Satinsky: That was already…that was a formal joint venture, it was registered and—
Peter Derby: Just created. Registered in ’87. I think it was registered in ’87. This was summer of ’88 when now Joe Ritchie sent his $5 million in starting capital. Now they needed to figure out how they were going to spend it, how were they going to actually make money, so I came in there to look at their business plans. And then I realized I need somebody else to help me, so I got my brother to fly over, who really understood a lot of this, and gave our input. But the Russians really drove it, and Joe Ritchie’s team approved it, but we gave our strong input. And we became friends with all of them, and they said why don’t you stay and work. And I said no, I’m into banking, investment banking, stock exchanges, so I left.
Daniel Satinsky: By the way, this was Dialog, was the name of it?
Peter Derby: Yes. So, the official first joint venture was an American guy from New Jersey who wanted to bring a pizza truck and just have, like you know those outdoor trailers in New York City that have Mexican food, and this fried food—you know, the trucks, the food trucks.
Daniel Satinsky: Yeah.
Peter Derby: So, he created a pizza food truck, and he also wanted there to be love between America, the United States, so he painted the Soviet and American flag on the side of his pizza truck, shipped over this trailer through Finland, brought it into Moscow, and decided he was just going to pull up on a street corner in some parking lot off of Red Square and sell pizza with an American flag and a Soviet flag, you know, love kind of thing. But he needed an official partner, so he kind of connected with Joe Ritchie, and so the same person, Pyotr Zrelov, helped to start that little pizza truck venture. That was the official first joint venture.
But the real joint venture was Dialog, and it was already formed, and the charter was in place, and they got their own little office building right next to the cathedral of the patriarch of Russia, literally right in the grounds of the cathedral. And Joe Ritchie, being kind of a missionary, loved the connection to the church and the soulfulness. And so, you would walk out of the cathedral. It was a little yellow osobnyak*, and that was Dialog. It was literally in the grounds and the gates of the entrance to the cathedral. Yelohovski Sobor.
Anyway, so they formed this joint venture, as I said, came in, we did this advice to them, they really did a great job, we left. I became friends. I get engaged in February of ’89, the wedding is in July, and I decided to invite Pyotr Zrelov because he was so interested in the Russian history, and the White Russians, and my wife’s family—at that time she was my girlfriend—but he kind of knew that I was dating her and that she, you know, her family used to rule Russia from 860 to 1605, and so there was some interest, so I decided to invite them, and they came. And they came to my wedding and my reception. And we got married in the cathedral here. It was a very nice service, and she comes from, as I said—
Daniel Satinsky: From the Romanov family?
Peter Derby: Before, there were rulers before the Romanovs. They were the Vikings, the Ruriks that came in 1860—I mean, in 860. The Russians couldn’t…the Russians were killing each other, basically, around St. Petersburg, and they needed somebody to give them the rule. So, they went to the Vikings, who were the rulers at the time of Scandinavia, and so on, and one of the seventh son, I believe, Rurik, was sent to Novgorod to start this rule, and so his family ruled up till Ivan the Terrible in 1605, so they ruled for about almost 800 years. And then when Dmitry was killed by Ivan the Terrible, his only son, and—
Daniel Satinsky: In Uglich.
Peter Derby: Yes.
Daniel Satinsky: I was there, yeah. I’ve seen.
Peter Derby: And there was Minin and Pozharsky kind of tried to help rule. The other person was the head of the army at the time of the Cossacks, was [Dmitry] Troubetskoy, and so they kind of ruled for these ten years. But Troubetskoy being the main ruler of that threesome had no kids, and so the patriarch said look, this can’t continue, we need to—because fake Dmitrys are showing up all the time—we need to now just get a new czar in place, so why doesn’t my brother’s son, Alexei Romanov, Mikhail Alexei Romanov, why doesn’t he become the ruler at 14—we’ll just guide him. We have elders that will guide him. He’ll be around long enough. So, it was the patriarch deciding that his nephew, his brother’s son, was going to be the guy that did it. That’s the beginning of the Romanov family. So, anyway.
So, they came to our wedding. Our wedding was the old Russian traditional wedding with the crowns and all. And at the reception Pyotr Zrelov tells me—and I invited, actually, out of the three main people, two of them came, and the spouses came, too, and Pyotr tells me, listen, Peter, we did a great job, the 5 million turned into 30 million. The sad news is that all of that was hard currency and it’s Vnesheconombank*, and the bank now is asking us for a five-year business plan to have access to our own money. And I said well, that’s not going to fly, you’re not going to be a successful joint venture if you can’t have access to the money you earn to reinvest and grow the business.
And he said exactly—and you said you weren’t going to stay with us because it’s technology, but you would if it was banking, investment banking, stock exchanges, so on, so we need a bank. And I said okay, but there’s only five state banks. There’s no private bank there. I mean, do you want to try to do a joint venture or something? He said, well, the only structure we’re allowed to have now under perestroika is a cooperative, because they want restaurants, little cooperative restaurants, they want little services to start, so the only thing we have is a law that just recently passed for a cooperative, so I don’t know, I guess you’re right, I don’t know how to do this. And I said cooperative, really? Well, we have something in the U.S. called credit union, and a credit union is a cooperative, but it’s a banking cooperative. And he said, really? And I said yeah.
He goes, well, you know what? Let me go back, let me try, maybe we can set up a cooperative bank and see if that goes anywhere. And I said okay, let me know what happens. But it’s literally my wedding reception, I just got married, you’re thinking is if we start a bank, what am I going to tell my wife, we just got married, we’re moving to Moscow? So, just give me a little time here. And this was July 16th.
So, he called me at the end of August, beginning of September and said I think we can do it. I think we can form a cooperative credit union bank—can you get rules on how that works and everything from the U.S. so we can try to set this up. And I said okay. And so that’s how it started. He registered it. He officially started in September, but he got registered by the Central Bank on the 19th of November of ’89, as the first non-state bank.
Daniel Satinsky: Wow.
Peter Derby: But as a cooperative. No one even thought of that, I guess. And he tried it, he did it, and he used Dialog’s capital to start it, the JV. So, the JV owned the bank. And he tried to do it under the cooperative of Moscow University, CEMI, the shareholders of Dialog that were economically driven. So, Moscow University, they have a finance department, CEMI, which is the Central Economic and Mathematical Institute, has an economic concentration, and JV Dialog, so those were the three original founders of DialogBank.
Daniel Satinsky: And they were able to get the funds of Vnesheconombank?
Peter Derby: No, not yet, but that was the intention.
Daniel Satinsky: Ah, okay.
Peter Derby: So, they said we’ll do this charter capital, but now we have to get Vnesheconombank to transfer money over, of which they first did it in rubles, by the way, convert everything in rubles at an exchange rate of one to one, if you can believe it, to start it. So, the people at the Central Bank said wow, this is an interesting thing, and they got somebody from the Central Bank to leave the Central Bank to join us in helping to start it.
So, then I came over as the CFO of it. I agreed to come. And so that was… They registered in November. I agreed in late February—well, actually, late January, early February to do it. I was trying to see how everything would work out here, get my wife on board. And then after I agreed to do it I started to tell my family about it, which was not easy because going back to the Soviet Union, the communists executed my grandparents’ parents, and it was just not a good situation. My grandfather was against it. He basically said the communists are just going to eat you up and spit you out, you’re not going to make a difference, nothing’s going to change, they’re going to make you do things if you do try to make a difference in a bad way. So, I kept telling him I’m going to be true to the cause, I’m going to be honorable, my grandmother’s values, all of that. Anyway, through all of that, he had a stroke, and he died.
Daniel Satinsky: Ooh.
Peter Derby: So, that made it somewhat burdensome on me but also made it a strong conviction of I’m either doing it the right way or I’m walking away. And I was hugely passionate about protecting grandmothers and grandfathers, so when I was on the team writing legislation, they kept telling me why is it always you’re giving examples of your grandmother or grandfather? They nicknamed me the protector of grandparents in the Ministry of Finance because I would always say how would Babushka Anya look at this. And they’re like, what? So, anyway, so that was the case.
And then Yeltsin was speaking at Columbia University also around May or so, June of 1990. I went down there to his speech. I became friends, actually, with a fellow who was at the UN, a Russian fellow at the UN, and because of the concerts. He was doing the cultural things for the UN thing. And he said listen, Yeltsin’s coming, you’re going to go to Russia, you should come and say hello, and he should know you going there. So, I met Yeltsin. Yeltsin gave me his home number.
And one of his assistants, a member of Parliament, [Victor] Yaroshenko, said look, I’m in charge of finance and taxation, can you bring me a lot of books and things for that? And can you get a big Russian flag, since you know Russian. Because we had a conversation. I was in Russian Boy Scouts. It was called Scoute and stuff, so I knew that. So, I brought him a whole box of U.S. tax law, the code, and business law books that I had from NYU, and I got him a huge Russian red, white and blue flag, bel-sini-krasni. It was white, blue, red. The Russian, the old flag before the revolution flag. And a big one. Which, at the end, when that whole place fell, that’s the flag I think they used to put on top of the White House.
Daniel Satinsky: Wow.
Peter Derby: In 1993. Anyway, it was a big flag. He had it in his office in the White House, in the Russian White House. Anyway, so I arrive now, and I know a bit Yaroshenko, and he’s asked to connect with him. We started the bank. Yaroshenko jokingly said look, come after July 2nd, otherwise you’re going to end up having to pay taxes, you’ll be there 183 days, so why don’t you come—I mean, you’re coming June 30th, wait two more days and then you don’t have to file your first year here, you’ll get to know the tax code and abide by things. So, I came July 2nd, at his advice, and started DialogBank with the team there. We were four or five people at the time.
Daniel Satinsky: And the team were Russians that came from—
Peter Derby: All Russians. A couple from the Russian Central Bank, workers. Our little townhouse was attached to the back of the Ministry of Finance of the Soviet Union, so we were right on Red Square, right off of Red Square. And I remember having one of the foreign American partners coming in later, a client, and he said well, how do I know you have enough money to always transfer? And I said well, I think I’m attached to the Ministry of Finance—jokingly, you know. He’s like really, that’s the building? And I said yeah, that’s the building attached to my—break into the wall and say hello to the minister. Anyway.
So, I came in, we started that, and then the chairman of the board, Makarov, who was head of CEMI, which was the Economics and Mathematical Institute, he basically said look, I spoke to someone at the Central Bank. They really need help for us to work as an independent bank because they don’t really have rules, so you need to go meet with them and see how we can try to write—it’s called the “reclament”, which is basically policies and procedures, how are they going to apply to creating now a non-state bank.
So, I did. I went to the Central Bank, and I met with Dmitry Tulin and Viktor Gerashchenko, the chairman. And they were very nice, they were very welcoming. They spoke English beautifully. And they basically said look, you’re here, this is new, this is interesting, not sure we want you, not sure we want this, but let’s give it a shot. We need to have rules and procedures for you to follow. As an independent bank you cannot disgrace the Soviet Union’s image in finance in the world markets because we have a very good reputation in banking. And they also owned a lot of these European, like Moscow Narodny* Bank in London. They had like a whole chain of subsidiary banks in Austria and other places.
Daniel Satinsky: I remember that, yeah.
Peter Derby: That was Central Bank, so you can’t blemish us. So, we’re going to write these rules and then we’ll have you look at them and read them. And we have this guy…he was murdered later. A nice young kid. Andrei…
Daniel Satinsky: Paul Tatum?
Peter Derby: No, Paul Tatum was an American that got murdered, but the Russian guy that got murdered on the soccer field. He was the vice chairman of the Central Bank of Russia later. Andrei Kozlov. I believe his name was Andrei Kozlov. He’s going to be writing all the rules, so why don’t you connect with him? So, I connect with him, after the meeting connected with him. And he’s like okay, I’ve got to write these rules—can you help me write them? But I’ll write them. But you’ll write them, but I’ll write them. We’ll together write them, but it will be my rules. I said okay. So, that’s how we started. So, he was writing the rules. I was helping him write the rules for the banking side to do the private bank.
Then, through that process, I met Boris Fyodorov, who wanted to know what the hell’s going on, so I went to the Ministry of Finance and explained to him. And then he said okay, I have Bella Ilynichna Zlatkis, the deputy chair of…department head for financial markets here, and I want her to write some rules, so why don’t you work with her and write some rules for us, too, on the financial side. And that was basically we wrote the corporate law, which is the “aktsionernoe obshestvo”* law, which I told you last time about how we wrote it. And December 10th it ended up the one main switch, one shareholder one vote, instead of one share one vote, that little huge nuance, and then Yeltsin, after correcting it, wanted December 25th to say it’s kind of a Western law. So, I started working with Zlatkis as well.
And then, at that moment there was a program called the 500 Day Plan that was being done under Gorbachev, but right when Gorbachev couldn’t make up his mind yes or no, he was a little half pregnant, which in nature never really works, the team left to go to Yeltsin, and just as they got to Yeltsin, Zlatkis was working with them and said we should meet with them. So, I met [Grigory] Yavlinsky, and he had his assistant Seriozha [Sergey] Zverev. And he said let’s work together, too. So, I ended up working with Seriozha Zverev in the White House under Yavlinsky, I worked with Bella Ilynichna Zlatkis at the Ministry of Finance of Russia under Fyodorov, and I was working with Andrei Kozlov under Dmitry Tulin in the Central Bank.
And those were the worker bees. Those were the people that truly created—those three people truly created the basic infrastructure on the government side for a new economy and a new market reform. They were the first key seeds in that process. People jumped on board to help out, whether it was Cleary Gottlieb helping us write the corporate law later, and a few people, one person from Moscow University, Igor. He had longer hair. A really good guy. He was a professor in Moscow University. He helped with stuff. Finding the original law of stock exchanges from the chairman of the Central Bank, telling us to go to his father, who’s in the Financial Institute library, which, don’t tell anybody, the books are still around…weren’t all burned. There were interesting little nuances at that time. But it was their initiative to do this, and we were just helping it along in ways.
One of the other really important help came from Corrigan, Jerry Corrigan. He was the president of the New York Fed. He came over also for this kind of helping thing, because Yeltsin said I really want to get domestic capital markets, and they usually have to start with a domestic Treasury market, so if I can’t get Russian bonds bought by the people, they’re not going to buy any corporate bonds, so we need to do something. Jerry Corrigan came over, they drank a lot of vodka, hugged each other, bear hugged each other, and then Jerry Corrigan came back and said to the bankers in New York I need some of you 30-year-olds, 32-year-olds that really do all the work to volunteer and go over there, part of USAID or some kind of reform, I don’t know exactly which committee of government it was. Maybe it was the Federal Reserve’s education program. I need you guys to go over there.
So, three of them came over to meet with Andrei Kozlov. I met them, too, and I said to them, look, you cannot come off as you telling them what to do. You have to come off and say I’m here, tell me what you want to know. It’s going to be your law, it’s going to be your market, it’s going to be your Treasury. We’re not telling you what to do. There’s a lot of different ways to make this painting work, but it’s going to be your painting, and we’ll just give you the data. We’ll give you the colors, we’ll give you the tools to figure it out.
Peter Derby: They were the official people from the U.S. government State Department program. They were the people that organized it, and HBO supported it, funded it, but they were the ones that were the official government people that did it, yes.
Daniel Satinsky: And then you were working with Billy Joel directly?
Peter Derby: Billy Joel. I was on Billy Joel’s team, yes.
Daniel Satinsky: Okay.
Peter Derby: So, I did that. They had this guy Igor Smirnov who was the Russian interpreter for Billy on the stage, and I was kind of the assistant tour manager under Jimmy Minor, who was the world tour manager that helped him. I interpreted things for him, I did errands for him. I went with Billy Joel into the audience when Billy jumps into the audience, and he runs around. I go with Billy because I speak the language, too, if anyone, you know, to say something. So, yeah, if you see the HBO, you’ll see me in a crazy green with yellow striped shirt out there. Anyway.
So, he tells this to…he basically tells—and most people knew that I was Russian because my grandmother would call backstage at the Palladium Theater for something, rarely, but she would call, and Mike Proscia, the head of the union, would say hey, get that Russian kid. I was the backstage director at the Palladium Theater. There were two people running it: the stage manager and the backstage director, the two of us. And he was like get that Russian kid. Anyway. So, everyone knew I spoke Russian. And I interpreted, actually, Elton John’s U.S.S.A. tour for the stage manager, all the equipment setup, all the stage setup for him, even before Billy’s tour. That was, I think, ’79, early ’79. This was summer of ’87 with Billy Joel.
So, with that they kind of said okay, he did the Elton John, a couple of little things here—I didn’t go there, but I helped them do all the paperwork. And then Billy’s people asked me, and Jim [Hickman], that you mentioned, even called to interview me and said okay, look, you know his show, yes, let’s do this. Because he had to kind of approve the composition of Billy’s team. And since I wasn’t the permanent person on the team, I was kind of a little bit in between, he called me up and said let’s meet for coffee, and so anyway. So, yes, all that went through.
And anyway, so Paul Pilzner said to his consultant in Washington you should really consider Peter Derby. And Joe Ritchie called, and I did meet him, and he said look, I don’t know about your 700 other people, but all I know is I’ve spent with you the day, and before you leave in a few hours on your flight back—because I took like a 6:00 a.m. flight to Chicago, this was maybe 3:00 in the afternoon—and he goes you met already with four of my most important partners, and they all feel you have the personality, and the knowledge, and the language, we just want you to go, not somebody that you’re going to help identify on your team, would you do it.
So, I said well, the good news is I met my investment banking budget already in the first half of the year, so probably my boss won’t give me a hard time on Wall Street, but I have to ask. So, I came back. It was time to talk. I sat down and he said sure, you can do it. Last year you went with Billy Joel, this year you’re going for what, Ben & Jerry’s now? I said well, not exactly Ben & Jerry’s, because they were in the paper with ice cream, but doing the first technology joint venture. So, that’s how I did it. I went there and I—
Daniel Satinsky: What kind of business was Joe Ritchie in?
Peter Derby: He was in charge of Chicago Research & Trade. There were only three option trading companies that were amazing. O’Connor was one of them, Susquehanna the other, and CRT. And this guy could multiply five numbers times five numbers in his head. I mean, he was…I don’t know if he was autistic or whatever, but he was a genius in his own way. I don’t know what it means to be able to do that, but he was quite… And he would take five-minute naps in the middle of the day, like you’d come in he’s just like boom, asleep, wakes up, boom. But he was an interesting fellow, 13 kids. His parents, I think, were missionaries in Afghanistan at some point, and he spent some time there, so he was kind of a worldly thinking guy. He was pretty close to Richard Branson and Steve Fossett, because they all flew planes, and they did that balloon thing where they tried to go around the world, the three of them, in a balloon, and so I think he did the mission control for that balloon trip.
Anyway, he was a very unique person who was extremely soulful and extremely…like no ego, like literally almost no ego, like a human being with no ego, purely brains. So, his mind was not ego. His mind was calculative and his entire being was his heart, how his soul felt. Like when you talked to him it was almost like you were embraced in this cloud of goodwill, you know what I mean? It was kind of an interesting thing, which somewhat made me, when I closed my eyes, felt like it was my grandmother’s value set. It was this real wholesomeness to what he was trying to do. So, anyway, I went over there and literally, like Bill Gates coming, sleeping on the couch that I was on, and this person, because Bill Gates was doing work there with the same group, because it’s the first technology joint venture.
Daniel Satinsky: And the Russian partner was who?
Peter Derby: Oh, the Russian partner was a compilation. So, it turns out that when Joe Ritchie tried to explain his businesses to them when he went over to try to just do something, anything to help and create this bridge, and create a dialogue, he tried to say it’s finance, but it was algorithms and computer-driven, so the only thing the Soviets understood was it was computers and algorithms. They don’t understand the other side. And so, they got him to meet with Moscow University, Kamaz, which is the General Motors of Russia.
Daniel Satinsky: I know Kamaz, yeah.
Peter Derby: And the Ministry of Aerospace, because he was a pilot, all of that. So, in the end the vice director of Kamaz in charge of computer technology, Pyotr Zrelov, was kind of the one that said wow, we can really do something here because we at Kamaz, we need computers, we can’t, there are all sanctions and COCOM against us and everything else, so maybe we can do something where we create software there, we can get computers back, and they can do something. So, he became kind of like the lead Soviet guy out of this concoction of ministries to do things.
And so they kind of shook hands, and the both of them liked each other, and they both became kind of like these two co-CEOs of this new project, and Joe Ritchie said okay, Pyotr, you’re the CEO—the general director, because at that time there was no CEO concept—you’re the general director, you figure it out. So, Pyotr Zrelov, he went and said okay, I’m in Kamaz, so Kamaz could do it, but I need the ministry, so I get the automobile ministry to be my partner, and Moscow University, you were here at the meeting, so why don’t you jump in. The NASA equivalent Aerospace Institute, you jump in. CEMI, the mathematical economics business institute, is as close as business we can understand in this, you jump in. And these are all academics—[Valery] Makarov and [Victor] Sadovnichiy, so you get kind of like this elite group, and it’s all funded by Kamaz. Kamaz became the beneficiary of technology and the funder of this thing from the Russian side, with all these ministries a part of it.
So, the first time I went there you meet with like seven different ministers. They have no idea, probably, what’s going on originally. Anyway, I went over there, and I realized it was heavy technology software, hardware, but my brother worked at Bell Labs, and he was on the team that created the Unix operating system, the one that was valedictorian everywhere, and he was a Cornell electric engineer. Anyway, so I had him come over for a few weeks to Moscow to help me figure out the business plan, because I had this whole business plan. So, he really is the one that drove the original pieces of that business plan, which, by the way, the Russians did a pretty good job on, and he helped them with, and to lay out that. So, that was the—
Daniel Satinsky: That was already…that was a formal joint venture, it was registered and—
Peter Derby: Just created. Registered in ’87. I think it was registered in ’87. This was summer of ’88 when now Joe Ritchie sent his $5 million in starting capital. Now they needed to figure out how they were going to spend it, how were they going to actually make money, so I came in there to look at their business plans. And then I realized I need somebody else to help me, so I got my brother to fly over, who really understood a lot of this, and gave our input. But the Russians really drove it, and Joe Ritchie’s team approved it, but we gave our strong input. And we became friends with all of them, and they said why don’t you stay and work. And I said no, I’m into banking, investment banking, stock exchanges, so I left.
Daniel Satinsky: By the way, this was Dialog, was the name of it?
Peter Derby: Yes. So, the official first joint venture was an American guy from New Jersey who wanted to bring a pizza truck and just have, like you know those outdoor trailers in New York City that have Mexican food, and this fried food—you know, the trucks, the food trucks.
Daniel Satinsky: Yeah.
Peter Derby: So, he created a pizza food truck, and he also wanted there to be love between America, the United States, so he painted the Soviet and American flag on the side of his pizza truck, shipped over this trailer through Finland, brought it into Moscow, and decided he was just going to pull up on a street corner in some parking lot off of Red Square and sell pizza with an American flag and a Soviet flag, you know, love kind of thing. But he needed an official partner, so he kind of connected with Joe Ritchie, and so the same person, Pyotr Zrelov, helped to start that little pizza truck venture. That was the official first joint venture.
But the real joint venture was Dialog, and it was already formed, and the charter was in place, and they got their own little office building right next to the cathedral of the patriarch of Russia, literally right in the grounds of the cathedral. And Joe Ritchie, being kind of a missionary, loved the connection to the church and the soulfulness. And so, you would walk out of the cathedral. It was a little yellow osobnyak*, and that was Dialog. It was literally in the grounds and the gates of the entrance to the cathedral. Yelohovski Sobor.
Anyway, so they formed this joint venture, as I said, came in, we did this advice to them, they really did a great job, we left. I became friends. I get engaged in February of ’89, the wedding is in July, and I decided to invite Pyotr Zrelov because he was so interested in the Russian history, and the White Russians, and my wife’s family—at that time she was my girlfriend—but he kind of knew that I was dating her and that she, you know, her family used to rule Russia from 860 to 1605, and so there was some interest, so I decided to invite them, and they came. And they came to my wedding and my reception. And we got married in the cathedral here. It was a very nice service, and she comes from, as I said—
Daniel Satinsky: From the Romanov family?
Peter Derby: Before, there were rulers before the Romanovs. They were the Vikings, the Ruriks that came in 1860—I mean, in 860. The Russians couldn’t…the Russians were killing each other, basically, around St. Petersburg, and they needed somebody to give them the rule. So, they went to the Vikings, who were the rulers at the time of Scandinavia, and so on, and one of the seventh son, I believe, Rurik, was sent to Novgorod to start this rule, and so his family ruled up till Ivan the Terrible in 1605, so they ruled for about almost 800 years. And then when Dmitry was killed by Ivan the Terrible, his only son, and—
Daniel Satinsky: In Uglich.
Peter Derby: Yes.
Daniel Satinsky: I was there, yeah. I’ve seen.
Peter Derby: And there was Minin and Pozharsky kind of tried to help rule. The other person was the head of the army at the time of the Cossacks, was [Dmitry] Troubetskoy, and so they kind of ruled for these ten years. But Troubetskoy being the main ruler of that threesome had no kids, and so the patriarch said look, this can’t continue, we need to—because fake Dmitrys are showing up all the time—we need to now just get a new czar in place, so why doesn’t my brother’s son, Alexei Romanov, Mikhail Alexei Romanov, why doesn’t he become the ruler at 14—we’ll just guide him. We have elders that will guide him. He’ll be around long enough. So, it was the patriarch deciding that his nephew, his brother’s son, was going to be the guy that did it. That’s the beginning of the Romanov family. So, anyway.
So, they came to our wedding. Our wedding was the old Russian traditional wedding with the crowns and all. And at the reception Pyotr Zrelov tells me—and I invited, actually, out of the three main people, two of them came, and the spouses came, too, and Pyotr tells me, listen, Peter, we did a great job, the 5 million turned into 30 million. The sad news is that all of that was hard currency and it’s Vnesheconombank*, and the bank now is asking us for a five-year business plan to have access to our own money. And I said well, that’s not going to fly, you’re not going to be a successful joint venture if you can’t have access to the money you earn to reinvest and grow the business.
And he said exactly—and you said you weren’t going to stay with us because it’s technology, but you would if it was banking, investment banking, stock exchanges, so on, so we need a bank. And I said okay, but there’s only five state banks. There’s no private bank there. I mean, do you want to try to do a joint venture or something? He said, well, the only structure we’re allowed to have now under perestroika is a cooperative, because they want restaurants, little cooperative restaurants, they want little services to start, so the only thing we have is a law that just recently passed for a cooperative, so I don’t know, I guess you’re right, I don’t know how to do this. And I said cooperative, really? Well, we have something in the U.S. called credit union, and a credit union is a cooperative, but it’s a banking cooperative. And he said, really? And I said yeah.
He goes, well, you know what? Let me go back, let me try, maybe we can set up a cooperative bank and see if that goes anywhere. And I said okay, let me know what happens. But it’s literally my wedding reception, I just got married, you’re thinking is if we start a bank, what am I going to tell my wife, we just got married, we’re moving to Moscow? So, just give me a little time here. And this was July 16th.
So, he called me at the end of August, beginning of September and said I think we can do it. I think we can form a cooperative credit union bank—can you get rules on how that works and everything from the U.S. so we can try to set this up. And I said okay. And so that’s how it started. He registered it. He officially started in September, but he got registered by the Central Bank on the 19th of November of ’89, as the first non-state bank.
Daniel Satinsky: Wow.
Peter Derby: But as a cooperative. No one even thought of that, I guess. And he tried it, he did it, and he used Dialog’s capital to start it, the JV. So, the JV owned the bank. And he tried to do it under the cooperative of Moscow University, CEMI, the shareholders of Dialog that were economically driven. So, Moscow University, they have a finance department, CEMI, which is the Central Economic and Mathematical Institute, has an economic concentration, and JV Dialog, so those were the three original founders of DialogBank.
Daniel Satinsky: And they were able to get the funds of Vnesheconombank?
Peter Derby: No, not yet, but that was the intention.
Daniel Satinsky: Ah, okay.
Peter Derby: So, they said we’ll do this charter capital, but now we have to get Vnesheconombank to transfer money over, of which they first did it in rubles, by the way, convert everything in rubles at an exchange rate of one to one, if you can believe it, to start it. So, the people at the Central Bank said wow, this is an interesting thing, and they got somebody from the Central Bank to leave the Central Bank to join us in helping to start it.
So, then I came over as the CFO of it. I agreed to come. And so that was… They registered in November. I agreed in late February—well, actually, late January, early February to do it. I was trying to see how everything would work out here, get my wife on board. And then after I agreed to do it I started to tell my family about it, which was not easy because going back to the Soviet Union, the communists executed my grandparents’ parents, and it was just not a good situation. My grandfather was against it. He basically said the communists are just going to eat you up and spit you out, you’re not going to make a difference, nothing’s going to change, they’re going to make you do things if you do try to make a difference in a bad way. So, I kept telling him I’m going to be true to the cause, I’m going to be honorable, my grandmother’s values, all of that. Anyway, through all of that, he had a stroke, and he died.
Daniel Satinsky: Ooh.
Peter Derby: So, that made it somewhat burdensome on me but also made it a strong conviction of I’m either doing it the right way or I’m walking away. And I was hugely passionate about protecting grandmothers and grandfathers, so when I was on the team writing legislation, they kept telling me why is it always you’re giving examples of your grandmother or grandfather? They nicknamed me the protector of grandparents in the Ministry of Finance because I would always say how would Babushka Anya look at this. And they’re like, what? So, anyway, so that was the case.
And then Yeltsin was speaking at Columbia University also around May or so, June of 1990. I went down there to his speech. I became friends, actually, with a fellow who was at the UN, a Russian fellow at the UN, and because of the concerts. He was doing the cultural things for the UN thing. And he said listen, Yeltsin’s coming, you’re going to go to Russia, you should come and say hello, and he should know you going there. So, I met Yeltsin. Yeltsin gave me his home number.
And one of his assistants, a member of Parliament, [Victor] Yaroshenko, said look, I’m in charge of finance and taxation, can you bring me a lot of books and things for that? And can you get a big Russian flag, since you know Russian. Because we had a conversation. I was in Russian Boy Scouts. It was called Scoute and stuff, so I knew that. So, I brought him a whole box of U.S. tax law, the code, and business law books that I had from NYU, and I got him a huge Russian red, white and blue flag, bel-sini-krasni. It was white, blue, red. The Russian, the old flag before the revolution flag. And a big one. Which, at the end, when that whole place fell, that’s the flag I think they used to put on top of the White House.
Daniel Satinsky: Wow.
Peter Derby: In 1993. Anyway, it was a big flag. He had it in his office in the White House, in the Russian White House. Anyway, so I arrive now, and I know a bit Yaroshenko, and he’s asked to connect with him. We started the bank. Yaroshenko jokingly said look, come after July 2nd, otherwise you’re going to end up having to pay taxes, you’ll be there 183 days, so why don’t you come—I mean, you’re coming June 30th, wait two more days and then you don’t have to file your first year here, you’ll get to know the tax code and abide by things. So, I came July 2nd, at his advice, and started DialogBank with the team there. We were four or five people at the time.
Daniel Satinsky: And the team were Russians that came from—
Peter Derby: All Russians. A couple from the Russian Central Bank, workers. Our little townhouse was attached to the back of the Ministry of Finance of the Soviet Union, so we were right on Red Square, right off of Red Square. And I remember having one of the foreign American partners coming in later, a client, and he said well, how do I know you have enough money to always transfer? And I said well, I think I’m attached to the Ministry of Finance—jokingly, you know. He’s like really, that’s the building? And I said yeah, that’s the building attached to my—break into the wall and say hello to the minister. Anyway.
So, I came in, we started that, and then the chairman of the board, Makarov, who was head of CEMI, which was the Economics and Mathematical Institute, he basically said look, I spoke to someone at the Central Bank. They really need help for us to work as an independent bank because they don’t really have rules, so you need to go meet with them and see how we can try to write—it’s called the “reclament”, which is basically policies and procedures, how are they going to apply to creating now a non-state bank.
So, I did. I went to the Central Bank, and I met with Dmitry Tulin and Viktor Gerashchenko, the chairman. And they were very nice, they were very welcoming. They spoke English beautifully. And they basically said look, you’re here, this is new, this is interesting, not sure we want you, not sure we want this, but let’s give it a shot. We need to have rules and procedures for you to follow. As an independent bank you cannot disgrace the Soviet Union’s image in finance in the world markets because we have a very good reputation in banking. And they also owned a lot of these European, like Moscow Narodny* Bank in London. They had like a whole chain of subsidiary banks in Austria and other places.
Daniel Satinsky: I remember that, yeah.
Peter Derby: That was Central Bank, so you can’t blemish us. So, we’re going to write these rules and then we’ll have you look at them and read them. And we have this guy…he was murdered later. A nice young kid. Andrei…
Daniel Satinsky: Paul Tatum?
Peter Derby: No, Paul Tatum was an American that got murdered, but the Russian guy that got murdered on the soccer field. He was the vice chairman of the Central Bank of Russia later. Andrei Kozlov. I believe his name was Andrei Kozlov. He’s going to be writing all the rules, so why don’t you connect with him? So, I connect with him, after the meeting connected with him. And he’s like okay, I’ve got to write these rules—can you help me write them? But I’ll write them. But you’ll write them, but I’ll write them. We’ll together write them, but it will be my rules. I said okay. So, that’s how we started. So, he was writing the rules. I was helping him write the rules for the banking side to do the private bank.
Then, through that process, I met Boris Fyodorov, who wanted to know what the hell’s going on, so I went to the Ministry of Finance and explained to him. And then he said okay, I have Bella Ilynichna Zlatkis, the deputy chair of…department head for financial markets here, and I want her to write some rules, so why don’t you work with her and write some rules for us, too, on the financial side. And that was basically we wrote the corporate law, which is the “aktsionernoe obshestvo”* law, which I told you last time about how we wrote it. And December 10th it ended up the one main switch, one shareholder one vote, instead of one share one vote, that little huge nuance, and then Yeltsin, after correcting it, wanted December 25th to say it’s kind of a Western law. So, I started working with Zlatkis as well.
And then, at that moment there was a program called the 500 Day Plan that was being done under Gorbachev, but right when Gorbachev couldn’t make up his mind yes or no, he was a little half pregnant, which in nature never really works, the team left to go to Yeltsin, and just as they got to Yeltsin, Zlatkis was working with them and said we should meet with them. So, I met [Grigory] Yavlinsky, and he had his assistant Seriozha [Sergey] Zverev. And he said let’s work together, too. So, I ended up working with Seriozha Zverev in the White House under Yavlinsky, I worked with Bella Ilynichna Zlatkis at the Ministry of Finance of Russia under Fyodorov, and I was working with Andrei Kozlov under Dmitry Tulin in the Central Bank.
And those were the worker bees. Those were the people that truly created—those three people truly created the basic infrastructure on the government side for a new economy and a new market reform. They were the first key seeds in that process. People jumped on board to help out, whether it was Cleary Gottlieb helping us write the corporate law later, and a few people, one person from Moscow University, Igor. He had longer hair. A really good guy. He was a professor in Moscow University. He helped with stuff. Finding the original law of stock exchanges from the chairman of the Central Bank, telling us to go to his father, who’s in the Financial Institute library, which, don’t tell anybody, the books are still around…weren’t all burned. There were interesting little nuances at that time. But it was their initiative to do this, and we were just helping it along in ways.
One of the other really important help came from Corrigan, Jerry Corrigan. He was the president of the New York Fed. He came over also for this kind of helping thing, because Yeltsin said I really want to get domestic capital markets, and they usually have to start with a domestic Treasury market, so if I can’t get Russian bonds bought by the people, they’re not going to buy any corporate bonds, so we need to do something. Jerry Corrigan came over, they drank a lot of vodka, hugged each other, bear hugged each other, and then Jerry Corrigan came back and said to the bankers in New York I need some of you 30-year-olds, 32-year-olds that really do all the work to volunteer and go over there, part of USAID or some kind of reform, I don’t know exactly which committee of government it was. Maybe it was the Federal Reserve’s education program. I need you guys to go over there.
So, three of them came over to meet with Andrei Kozlov. I met them, too, and I said to them, look, you cannot come off as you telling them what to do. You have to come off and say I’m here, tell me what you want to know. It’s going to be your law, it’s going to be your market, it’s going to be your Treasury. We’re not telling you what to do. There’s a lot of different ways to make this painting work, but it’s going to be your painting, and we’ll just give you the data. We’ll give you the colors, we’ll give you the tools to figure it out.
And the reason is because I met with Kozlov a few days before they were coming, and he’s like these guys are going to come, they’re going to tell me I’m an idiot, I know nothing, here’s what you do. They’re going to drop the procedures on my table and say translate them into Russian, goodbye. So, to make sure that didn’t happen—which is why the uniqueness is to have a conduit of a goodwill person—I’m not going to try to say more than what I was or am—but being in the right place at the right time, having the right relationship of respect and humanity between Kozlov and I, him sharing his concerns with me, my opportunity to see this team before they come in, giving them a little bit of guidance—they didn’t have to listen to me either—giving them a little bit of guidance in this.
And by the way, they naturally, right away said of course. Matter of fact, Peter, without you even telling us that’s probably what we would have done, but now that you tell us, we definitely will do that, you know what I mean? But I felt that they were really on that track anyway. I wasn’t trying to convince them of it. They immediately kind of accepted it. And of course, the meeting happened. I’m sitting there with Kozlov, and Kozlov is saying okay, so tell me what I’m supposed to do. And they’re like no, you tell me what you want. And he’s like yeah, yeah, okay, okay, yeah, just tell me what you brought, put it on the table, give it to me.
And they’re like no, that’s not why we’re here. If you want, if that’s the way it is, we’re leaving. And they said you’re what? He goes yeah, we’re going to leave, we’re not here to tell you anything. That means you didn’t do your homework, you don’t want to know what you want to do. We’re here to help you to do what you want to do. And he said are you for real? They said yes. And they literally, it went that way. And the first GKO* markets were created based on that, Jerry Corrigan’s bear hug, this team coming in telling Andrei we’re here just only to inform you and help you in any way we can, but it’s going to be your decisions the entire way. And then he was empowered. He brought in two of his other people and the three of them, and myself, from time to time, and with this team really put together the structure and created GKO market.
Daniel Satinsky: Wow.
Peter Derby: So, those are the unique helps that—and I, at that time, felt so great that finally this good relationship between Russia and the U.S., mutual respect, you know, at that time 90 plus percent of the population adored America, right, before the whole Kosovo and Serbia war and all that strife, or NATO moving, expanding, all that. Before all that politics it was amazing. And it was even on policy issues. and they were trying to figure out which way, you know, what’s the better version—this way, that way, what goes first, how it works. And I thought it was critical to the foundation of how Russia’s beginnings were so solidly done and solidly supported. And the institutions came in to fund it because the Fed people know what it was done, and how it was done, and so people were starting to invest, and they kind of knew the system. Anyway, I think those were key components early on.
We then formed, kind of restructured DialogBank in my second year, going into 1991, so almost, yes, after the second anniversary, where we formed an international bank. DialogBank was the first international bank because I went to apply for an international banking license with Swift and do foreign payments. This first was all domestic. And now I can bring the real hard currency back into DialogBank because we couldn’t have hard currency until I had a foreign license.
So, that’s when I became a part owner of the bank as well as a manager of the bank and we restructured the equity holding a bit, we put in an ESOP plan for all the employees to do a stock ownership plan, and then we got our first license. And as a matter of fact, the Central Bank then asked me to be kind of an interviewer of other Russian banks who wanted international banking licenses, so I had to kind of give the okay or not to all these other now oligarchs of Russia, whether or not to have them get foreign licenses for their banks. So, that’s how I was involved.
Daniel Satinsky: So, originally was your client for the DialogBank, it’s like a pocket bank of the joint venture, in a way.
Peter Derby: Correct. Our first client was Dialog itself. Some of the workers had spouses that had little co-op restaurants, so we got a couple little restaurants. We got a guy that was running a taxi service. We got a department of Moscow State University that opened up an account, so we got little things. We had then joint ventures, JV Dialog had joint ventures in about 15 cities, so I opened up branches in 15 Soviet cities. Like Minsk was just a city, Belarus, but we opened up a branch because it was the Soviet Union, right? So, we opened up branches in 15 different cities in 1990.
Then the Soviet Union fell apart at the end of 1990 and we started having to then do individual, and we kind of got grandfather licenses in Kazakhstan and Belarus and so on. So, yes, it was a JV Dialog network and suppliers of JV Dialog, so it became that. Once I got the international license in ’91 we went and said okay, Pizza Hut, Coca-Cola, McDonald’s, you’re right there, would you do it, and they agreed. Radisson Hotel, yes. But Radisson said I’ll do it if you open a branch here. I’m like, well—
Daniel Satinsky: In the Radisson.
Peter Derby: Yeah, in the Radisson. So, I said okay, and we opened a branch, we licensed a branch, so it was kind of a we helped them, they helped us. Pizza Hut’s right across the street—
Daniel Satinsky: This was ’91 you said?
Peter Derby: We got the license in ’91, so this was late ’91-’92 when we opened up all these accounts. And then I basically went straight down the list of foreign companies, German, Japanese, Korean, you name it, Italian. We started to… Because it was either us or the Vnesheconombank. You had two choices.
Daniel Satinsky: Right.
Peter Derby: And as I mentioned to you when I talked to you before, how licenses are done, I go in to get my No. 1 license done and I see there’s a second bank asking for License No. 2, and I was like how did they get here? And it was the husband of the secretary of the chairman of the Central Bank, who ran another bank, who, she must have told her husband, and he’s like I need one of them, too, right? So, Mosbusiness Bank was two, Inkombank was No. 3 licenses in international banking licenses. But they were more industrial Russian. They were dealing with Russian ministries, and so they weren’t really competing with the Arbat store, that Irish store on the Arbat that was bringing in food and clothing and things like that.
So, I was doing import export and a lot of the foreign. I mean, I had Coke and Pepsi. I think I was the only bank in the entire world that had Coke and Pepsi in the same institution, because neither one of them would ever allow that. And I had to go to the board meetings both at Pepsi and Coke to actually get that approved, and we had to have a Chinese wall, policies and procedures, separate branches where neither branch would touch either one. So, we had one way down the southern part of Moscow, Dukat Place—Parus, actually. It was called Paros, the place called Parus, an office complex. That was Coke. And Pepsi was at the Radisson Slavyanskaya Hotel. So, it was an interesting development.
So, that’s how it started. We did the bank. We already had the investment bank, Troika Dialog, started in ’91 as well because of privatization. I was part of the privatization team. I think I told you about that stuff from last time on the big picture strategy stuff. So, that’s kind of how we developed the bank. And then as we moved forward, I wanted Russian citizens, as I mentioned to you last time, to feel fully fledged normal citizens of the world, they don’t have to have $20,000 in cash to travel to London, so we decided to create credit cards, bring ATMs, bring mortgages, bring normal consumer life issues. Through that we did other things. Like I mentioned, you had to choose what kind of credit card you wanted because of the elections coming, so people needed to make choices in life and things like that.
But DialogBank itself, we started to enhance our locations closer to where the businesses are, bring the branches to them, because believe it or not, the person from your bank had to—it’s like picking up the mail, going to your mailbox. So, literally they would come in the morning around 9:30, line up and get all of their last night’s payments that they—money received as well as to make their payments for today, their wires for today. So, it was like this physical trip to your bank every single day to get your statement. That’s how you did business. And so we brought the branches closer to their locations, so they didn’t have to travel all the way through Moscow. We connected computer systems to do it.
And then we had some pretty large oil companies out in Siberia, so I needed to figure that out, so I went back to the vice president of Bank of New York and I said look, you want corresponding banking, you’ve been so helpful and everything, how do you, like I trade and make payments through you before Swift, why can’t I use your technology to go to Siberia? And he said, well, you can. So, we ended up using the consumer banking software that I had with Citibank, Peter Derby’s personal computer software to make Peter Derby’s personal transfers at Citibank I used for the first transfers from Siberia in Russia. And then we used Bank of New York’s technology concept—we did an X.25 network connection and wrote the software based on that to actually have the Siberian oil companies make transfers. I basically put a branch out there and connected it by computers, and that’s how we set up the first thing. It was really using, you know like some people say use your American Express consumer credit card to start your little business in your garage.
Well, I actually used Citibank’s consumer transfer system for Peter Derby personally to really start the first transfers out of Russia to do that that way. Anyway, so we did that, we connected Siberia, and we started to really give normal banking services within the country and provided citizens with normal banking products for them to feel normal when they traveled anywhere abroad, and introduced the fundamental—
Daniel Satinsky: And is this, as the only one doing this I imagine you were somewhat deluged with people, you didn’t have to create demand, or did you?
Peter Derby: We did not have to create demand. We did have to educate. We created our own color scheme that was inviting. We used Moscow State University’s psychology department for this. We came up with a color scheme and a new font scheme, our own fonts that had no edges. And we used the concept of visualization, so like a telephone, you actually saw a little telephone next to T-E-L, let’s say, and then the phone number, so you could either read it, you could either see it, read it and, you know what I mean? We used different mnemonics and things like that to educate, to give people the knowledge.
But demand was always there. You just had to… Matter of fact, the demand was so strong that literally DuPont called and said I understand you’re turning down Conoco as a client, but you have to understand they’re an important company related to us, and we have a joint venture where we have to fund it, why are you turning it down? And I said well, it wasn’t Conoco that we turned down. We simply closed taking any additional clients because we’re overwhelmed with clients at Radisson Slavyanskaya and the lines are getting too long for those morning people coming in to do their payments and getting payments that I don’t want the decay of service to discourage my existing clients, right? I mean, at some point they don’t feel good.
And they said well, we understand that, but can you please add Conoco to us? And of course we did. It was like a $75 million joint venture investment. But they were shocked. The CFO of DuPont calling us and going guys, what are you doing? And we’re explaining it’s all about service quality. And he’s like okay, I get it, I respect that, but can you do me a favor and just add this one client to it? And I said okay, part of it. So, the demand was overwhelming.
Daniel Satinsky: And you were bringing staff on and having to train them?
Peter Derby: We were training them. We had to bring staff on. There was really no education. We had a psychology department from Moscow University assist because were getting people like the violinist for the Bolshoi [theather] wanting to come in and be a teller because the teller is earning $325 a month, and at the Bolshoi you’re getting $150 a month, so they wanted it for the money. So, we had to figure out whether they were right brain, left brain. We didn’t want to imprison you in your non-natural skill set and you’d be miserable just for the money. So, we did a lot of interesting things in that regard, too, but we built out the bank.
And I kept always saying it’s the Ministry of Finance. They kept asking me or the Central Bank why, when you wrote these rules, you didn’t make something exclusive for DialogBank. And I said, listen, I need 500 DialogBanks, not one, to Number 1, service the people, because I can’t do it all, and No. 2, we need a whole community here that can then develop and stand up and not be just the one entity taken out later. So, we just needed a lot of expansion. And I was perfectly okay with it as long as they did it with honesty and integrity. That was the core pedigree. Not always done by others, but that was our pedigree.
And it developed, and we were able to bring in a lot of these services and products. And I served on the anti-monopoly committee, I served on the capital markets committee, on the finance committee, on the American Chamber of Commerce. I bounced between all that to policy just to inform and to steer in the right ways of trying to do this as I saw it from more of a humanistic perspective as well.
Daniel Satinsky: You were doing an awful lot at once there. But you were a trusted advisor, I assume, and this is why they kept calling on you.
Peter Derby: I think they tested it early on in the first legislations I wrote, because one of Yeltsin’s senior people said we looked at this and we found nothing here that was special to you, yourself, since you wrote this, so please tell us where it is. And I said I didn’t do it. I mean, why would I do it? I want a level playing field. I think I’m good enough to do well. I may not win it, but I know I’ll do okay in a level playing field. And they’re like no, where is it? And I said no, really, this is it, this is the way I am.
And I think through that—Yavlinsky was key. Yavlinsky kind of really is the one who ultimately said this guy has the right intentions, and he’s the one that included me in a lot of the things. And his people tested me. Yeah, they really, you know. And it was early on, very early on in October, November, December of 1990. And Yavlinsky was even at dinner at my house when the Soviet Union fell apart that night in Minsk, Belarus. And so there was this—I don’t know if it was checking out or what, but there was this level of comfort and sincerity that was mutually felt, and history, right, because he was there at dinner, he knew my wife, he knew the family, he knew that this was a deeper commitment to the betterment of Russia.
And so yeah, they included me in quite a number of things on the Russian side, and I gave them my true, honest view, or I found good information to do it, right? I mean, I had Paul Volcker meet with them when he was going fishing, and I said Paul, I’ve known you for a long time, would you meet with the chairman? He’s like what am I going to tell him? But it was important. So, they got good, legitimate information. They made choices with it what they wanted to do or not do. But the initial help was sincere, was quality, was done well, and had real fruits of success. Real fruits. It’s what happened later that got destroyed.
Daniel Satinsky: Yeah. And as you expanded the bank, were you bringing in other expats or were you relying pretty much on—
Daniel Satinsky: So, I relied on Russians at the beginning entirely. Then I had a friend who was really a bright lady from our community here in Russia. She went over and married a fellow in Belarus, in Minsk. And I knew her when she worked at Dillon, Read in the bond market. She’s a math person, a quantitative person. And so, we just started the GKO market, right? We started the currency exchange market. We were the founders, with the Central Bank, of the ruble-dollar exchange market. It was a set of banks, the Russian banks at that time that were licensed. There was about a dozen of us. We were the founding members of the MICEX.
Daniel Satinsky: Okay.
Peter Derby: So, she came over to Moscow, heard I was there, visited me, and I said what are you doing? She goes well, I’m thinking Russia is progressing, and Lukashenko and Belarus is kind of stuck, they’re not going anywhere, and my husband, we need to leave Minsk and move to Moscow. I said okay. She said can I work for you? I said sure. You know some, you know, you’re finance, you’re Russian American. So, she came over to head up our capital markets team, help the trading of ruble-dollar currency trading and then GKO trading, so she came in. So, she was great because she was like I, real Russian, sincere, spoke the language. Her husband was from Belarus, really nice guy, was in the army, needed to get out, so he decided to go to law school, Moscow University Law School. And he did well and later on became a lawyer at Troika Dialog. And so, she came across.
So, now we had a team of like 12, 15 people and we’re getting more good Russians. I went to Moscow University’s president, rector, Sadovnichiy, and he kept saying what can I do, what can I do? I’m just on the board, what can I do? And I said you know what? You have the most important asset any institution has: it’s called people. Give me your best students. Give me your best finance students and so on. So, we got some students. Matter of fact, Ruben Vardanyan was one of their top finance students that then runs Troika Dialog. That’s how I got Ruben.
Daniel Satinsky: Oh, okay.
Peter Derby: Through that. And he was one of the top finance students. So, it was people. And then as we started to grow a little bit operationally. I needed a little connection to the West for Swift or Mastercard, Visa, so I had a fellow that I worked with, Louis Schwartz, who was also a very soulful guy, smart but caring guy. And I said Louis, I’m doing this stuff in Russia, you’re just finishing your MBA program in Chicago, you want to have some international experience, do you feel like coming to Russia? I’m happy to take you, or you want to go to McKinsey or Morgan Stanley? He’s like no-no, I’ll come.
So, he came over and he created in the trailers—we had, you know, the offices, we actually had to put office trailers were set up by a U.S.-Russian joint venture. And we took two trailers—actually, we first took half a trailer and had the Spaniard oil company have the other half of the trailer. Then we expanded, took the whole trailer, and that was our back office for Swift transfers. So, he headed up—I would go there. He had a jar of candy. Anybody that had, like did not say a bad word or curse or did something good would get a candy. Anybody that cursed had to put a ruble into another jar. And he had like team t-shirts. He was a Boston Red Sox fan and basketball guy, so he had like hats and t-shirts. And I was like oh my god, this is like this whole culture of all for one, one for all. He did a great job. I mean, Swift payments were done way ahead of time. I mean, they were amazing, almost zero error rate at the time. I mean, it was amazing. And so he was wonderful.
So, now we have the first two Americans, and everybody there is like this is the best thing ever, because they’re knowledgeable, they treat us with respect, they include us, they’re wonderful, everything was great. Then as we started to try to get additional Americans, that maybe we went a little too fast, maybe we didn’t, you know, it’s like you’re supposed to—as they say in Silicon Valley, hire slow, fire fast. As we brought some of the additional Americans, not all of them had that level of wonderfulness to them, and they were a little bit more short on patience. They were a little bit more me-me-me. And things at times unraveled with those.
And in general, it’s almost simultaneous with Russia as a country starting to question America’s true intent with movement of NATO and the whole Kosovo crisis and everything else, and the Russians were like okay, Louis and Sanya are amazing, Peter, but who the hell is this guy? He’s rude, he’s demanding, he’s condescending, he’s drunk all the time. I don’t know, it was like a whole bunch of things. He wants bonuses, but not for us. It was just…not all of them worked out, let’s put it that way.
Daniel Satinsky: Yeah. And now your focus was on the bank more than on Troika Dialog?
Peter Derby: My focus was on both. However, the bank was 95% of the assets, revenues, expenses and everything. The investment bank was just building up, was just getting going. We just got a contract to represent Merrill Lynch. That gave us enough money to pay everybody’s salary, enough to send people to Merrill Lynch’s training programs, so it kind of got us going. But there wasn’t yet an industry, right? We were just starting privatization. And as the voucher program got going, that was the first thing, was issuing—we did the first red herring for Nipek Oil Co., and we sold it at a table out on Manezhnaya Ploshad*, and set up a desk for people to sign up for shares, you know. With a real red herring. It was called the red herring in Russia, because before an IPO you used to have this thing called the red herring in America. It was a document, a prospectus that was the informational prospectus. So, we followed American basic standards at the time.
So, they were just getting going. And the team was a really great team—Katya Kubasova and Ruben Vardanyan ran it. Katya Kubasova’s dad was a Soyuz Apollo astronaut that actually was the head commander of that mission, Apollo mission—Soyuz-Apollo mission on the Russian side. Anyway, so they ran it, and they were doing it out of an apartment. I would meet with them. But yes, I think they were a little orphaned because they probably needed 40 hours of my time a week and I gave them four. So, they had to do things in the school of hard knocks. They would literally meet with me for the four hours. I would say yes, this direction, let’s do this, connect with this, and then they would just have to go and do it. So, I would say they did a lot of it. I gave them the capital, I gave them the connections, I gave them the support, but they actually executed it.
Daniel Satinsky: Right, right. You had a vision that this was going to grow as the privatization continued, that this was important.
Peter Derby: I believed in Glass-Steagall. I believed in the separation of investment banking risk and commercial banking risk. Commercial banking risk, prudential, government-backed, FDIC insured, people backed. Investment banking you’re at your own risk. Capital to be lost, bankruptcy to occur, separate risk, separate entities. You could have cross ownership, but it has to be Chinese walls, so we did those kind of things. So, I created it in the image of Glass-Steagall, which we had in America at the time, by the way.
Daniel Satinsky: Right. I remember.
Peter Derby: It was just being unraveled by Larry Summers and Phil Gramm, but it was still there. And Gramm-Leach-Bliley amendment and all that that occurred during that time. But I built it as believing in that principle and trying to help them as much as I could. But the bank alone needed four Peter Derby’s’ time, and then here. But I didn’t want to hold them back, either, right? I didn’t want to say you can only do like Yeltsin; you can only do what I approve. I hated that about Yeltsin because you can’t approve everything. The whole country can’t wait for your one approval because it just doesn’t work that way.
So, I just said to them you do whatever you guys need to do, and I’ll meet with you consistently, at least—it was usually twice a week. It was like four hours each time. And I would try to help them out quite a bit. And then if they had questions of a material nature they would come to me anyway on it, and that was part of our agreement—if it was really material you come, and I gave them time when they needed it to do it. But they really had to be doing a lot on their own. And the timing was more intellectual building—building a database of foreign red herrings that you can then use as boilerplate, learning what it’s about to figure out how we’re going to do it when it starts up in six months or a year.
And Dialog, at that time, JV Dialog, hired Troika as the first client to analyze each of their 15 city subsidiaries, how well they’re running their operations and whether we should create an internal stock exchange so that capital by the CFO at headquarters could be given out based on not you just wanting it, but based on who needed it more. It would be like a capital market, an internal capital market where everybody—so you have $5 million at headquarters, everybody bids on—he offers 5% interest rate, he offers 7%, 12%, 20, 30%, allocated to the most returns.
And so we created internally a document to create the internal Dialog, JV Dialog exchange, internal exchange with shares of capital amongst it, which then quickly—it never happened. Those documents went to the Minister of Finance to create the Moscow Stock Exchange. The original Moscow Stock Exchange concept was JV Dialog’s internal exchange. The same team went over there to do it, Pavel Teplukhin and that whole group. And Pavel was…there were two fellows, Pavel Teplukhin and Vladimir Kuznetsov were CEMI students, or Moscow State University students and CEMI students that went and got an MBA abroad, Columbia University MBA and London School of Economics. And they came back to CEMI, and the director was the chairman of the bank. He gave us those people to run—like Pavel Teplukhin was helping to do the stock exchange analysis. Then he went over to Harvard, I think, for a program, or back to the London School of Economics for a program and Vladimir came in to run the corporate finance group to write those first red herrings and things like that. And then he opened up Goldman Sachs’ office for Goldman Sachs.
Daniel Satinsky: Wow.
Peter Derby: Which is a little bit of a crazy story how Goldman Sachs tried to take my entire company while they invited me to breakfast. They invited me to breakfast, had me wait there two hours for their London person to come. He never shows up. Then this assistant, when I was going to leave, said no-no-no, he’s coming, he’s coming, he’s coming. He doesn’t come. I finally leave two hours later. I go over to Troika and he interviewed all my employees at Troika to hire all of them. So, he kept me out of Troika for two hours while he tried to hire all my employees.
And even with that happening, we helped them open up their office because it was important to have a Goldman office, and they put Vladimir as their person. So, they took our most senior guy, but all of the other employees stayed at Troika, did not go with Vladimir. He ended up hiring his own people. So, that’s the ethics, unfortunately, that Goldman taught my first employees, and that was not a good thing. And I tried to explain to them that that was not a good thing that they did. But that’s what they did. That’s the facts.
Daniel Satinsky: That’s what they did. And so what happened—
Peter Derby: And by the way, we even helped Citibank open its offices in Moscow, because they were one of the first licensed banks before the revolution, and we helped them open up their offices and licensing processes. And after all of that they tried to hire my Radisson branch manager and tried to pay her to take all my policies and procedure manuals, to steal them for their office, of which I ended up complaining to Paul Volcker, who I think got the guy fired in the end because he was on the board at the time.
And we gave them our policies and procedures in the end. We said look, don’t bribe us. We’ll help you because we need you here as a corresponding bank. They, in the end, became also a domestic bank and competed with us later, but it doesn’t matter. Again, I needed 500 DialogBanks. So, both Citibank’s unethical behavior as their first entrance into the marketplace and Goldman Sachs’ unethical behavior as their first entrance into the marketplace really saddened me because it was not the example I wanted for Western institutions, how they gave birth to their Russian entities. And even with that, we still helped them.
Daniel Satinsky: Do you think that kind of behavior then continued and sort of influenced the development of the markets?
Peter Derby: Yes, because it continued from CSFB, it continued from—it just continued. I mean, look, that’s why we have the SEC. That’s why—go look at the Foreign Corrupt Practices Act, and how in the last ten years the SEC has finally taken that pretty seriously, and how many people have gotten caught up in that. And the issue comes down to do you do—if you’re in Rome, do as the Romans do, and if you’re working in a country that the government is entirely corrupt, because they know they’re only there for our years, this is their only time to win the lottery and to make the money, and how are you going to run a business based on that.
That, unfortunately—I mean, the classic, most of these companies have a domestic joint venture partner. The purpose of that joint venture partner is to grease the wheels. And for Foreign Corrupt Practices Act the low-hanging fruit is look at every joint venture that has a domestic partner and then see the behavior of the domestic partner, and the foreigner just goes like this—[covers face]—know nothing, see nothing, hear nothing, you know what I mean?
Daniel Satinsky: Yeah, yeah.
Peter Derby: So, look, to me it was sad because it’s the beginning of a market, and you want to teach people how they should behave. You want to teach them etiquette, you want to teach them practices, policies. You want them to understand right and wrong and you want them to do things, right? That’s what you want to do. And those two institutions, or three, for that matter, CSFB, I mean, they, you know, and the ones directly with us, they really didn’t put their best food forward.
And I needed to say we’re going to help them because they’re still great institutions. Their local people decided to go the quick way. The quick way is always not the right way. The right way is the hard way. But let’s forgive them, understand it was wrong, help them because we need the institution in general, and teach them the harder way or the right way is, maybe just come and ask for help and maybe you get the help. And in our case, we will offer it to you. And so, we kind of turned it around on them, right, and said we’re here to help you. And they were like okay.
And I think our people understood that, and they also understood our culture and our deep committed passion to either do it the right way or not to do it. Like my grandmother used to say, do the right thing and whatever comes with it comes with it. And let’s do the right thing, let’s sleep well at night, and we have three tomatoes in the morning? Great. We have 20 tomatoes in the morning. Great. But we’re not interested in getting the most tomatoes. We’re interested in doing the right thing and everything else will be proportionate, and that’s how we did it.
Daniel Satinsky: So, what happened to the Dialog joint venture? What fate did it meet?
Peter Derby: I don’t know as of today because when I left it was still in existence. I know that the different branches of Dialog, some of them really did well. St. Petersburg did super well, Nizhny Novgorod super well. Another one in Siberia, a city where Sasha was from, really well. There was a few instances where…our director was murdered in one instance. Not clear exactly how. That was towards 1998, when I was already leaving, but I heard about that.
The St. Petersburg one, Vitaly Savelyev was chairman now of Aeroflot. I think today he’s the Minister of Transportation of Russia, so they really did—they went into real estate, technology. And when I was there, they were basically a private equity group. The center just had all these…the regions got so big and so independent that somebody said real estate is my biggest thing, I’m owning all the different buildings in town, other ones said I have great computer programmers, I’m doing computer programming, and so they kind of went off into their own pieces of strength. And the headquarters was kind of a private equity holding company of all these pieces, and they were still clients at the time that I left in ’98.
Daniel Satinsky: In ’98, okay.
Peter Derby: And today I don’t know, to be honest with you.
Daniel Satinsky: So, they were opening like separate companies in all these different—
Peter Derby: They got big enough that each one really did their own thing.
Daniel Satinsky: And then the bank, DialogBank?
Peter Derby: So, the bank itself, so then we had Troika Dialog, we had DialogBank, and we created the Development & Restructuring Bank. It’s called DRB, but it was Development & Restructuring Bank. It was kind of like EBRD. And people at first gave me a hard time—it’s like Derby Bank, DRB Bank. But it was really EBRD kind of concept.
And the reason is that when I worked on Wall Street at NatWest, I was part of the corporate finance team, and we also had a project finance team and a credit, asset-backed lending team. And the asset-backed lending team was kind of unique. So, we had instances where AT&T wanted to sell its phone systems. That’s an asset-backed financing, and we could charge different rates for these risks. So, I wanted to say there is corporate risk, general corporate risk, and then there’s also asset-backed risk—mortgages, real estate backed risk, leasing of equipment, trucks, cars risk. So, it’s a different kind of risk. Let’s create the Development & Restructuring Bank to bring about an expansion and get London and Washington, EBRD, World Bank and other banks to fund this risk separate from the general corporate risk, and let’s do sale leasebacks, leasing financing, mortgage financing and so on, so created this other bank.
And then I had my son born in ’93, I had my second born in ’96. My wife kept saying, you know, we only came for one year, and every year it’s one more year, and now we’re up to six years. We have two sons. One’s going to soon go to kindergarten, and he’s not going to kindergarten with bodyguards; we need to go home. So, at that point I started to think okay, how am I going to free myself of this? So, we thought possibly to sell the whole unit, and we started to work with Ruben, who I made president of Troika to create leadership succession, [Boris] Lipiainen to head DialogBank, leadership succession. We started to get bids to buy everything.
At the same time, I knew there were separate risks of each institution, Glass-Steagall. The U.S. is going to universal banking at this point, Glass-Steagall is gone, Gramm-Leach-Bliley amendment legislation is through, and the universal banking concept, Citibank, universal bank, all that stuff, European banks. But as I saw the analysis of bidders for the group, I realized they’re going to keep Troika and they’re going to spin off the bank.
And by the way, they naturally, right away said of course. Matter of fact, Peter, without you even telling us that’s probably what we would have done, but now that you tell us, we definitely will do that, you know what I mean? But I felt that they were really on that track anyway. I wasn’t trying to convince them of it. They immediately kind of accepted it. And of course, the meeting happened. I’m sitting there with Kozlov, and Kozlov is saying okay, so tell me what I’m supposed to do. And they’re like no, you tell me what you want. And he’s like yeah, yeah, okay, okay, yeah, just tell me what you brought, put it on the table, give it to me.
And they’re like no, that’s not why we’re here. If you want, if that’s the way it is, we’re leaving. And they said you’re what? He goes yeah, we’re going to leave, we’re not here to tell you anything. That means you didn’t do your homework, you don’t want to know what you want to do. We’re here to help you to do what you want to do. And he said are you for real? They said yes. And they literally, it went that way. And the first GKO* markets were created based on that, Jerry Corrigan’s bear hug, this team coming in telling Andrei we’re here just only to inform you and help you in any way we can, but it’s going to be your decisions the entire way. And then he was empowered. He brought in two of his other people and the three of them, and myself, from time to time, and with this team really put together the structure and created GKO market.
Daniel Satinsky: Wow.
Peter Derby: So, those are the unique helps that—and I, at that time, felt so great that finally this good relationship between Russia and the U.S., mutual respect, you know, at that time 90 plus percent of the population adored America, right, before the whole Kosovo and Serbia war and all that strife, or NATO moving, expanding, all that. Before all that politics it was amazing. And it was even on policy issues. and they were trying to figure out which way, you know, what’s the better version—this way, that way, what goes first, how it works. And I thought it was critical to the foundation of how Russia’s beginnings were so solidly done and solidly supported. And the institutions came in to fund it because the Fed people know what it was done, and how it was done, and so people were starting to invest, and they kind of knew the system. Anyway, I think those were key components early on.
We then formed, kind of restructured DialogBank in my second year, going into 1991, so almost, yes, after the second anniversary, where we formed an international bank. DialogBank was the first international bank because I went to apply for an international banking license with Swift and do foreign payments. This first was all domestic. And now I can bring the real hard currency back into DialogBank because we couldn’t have hard currency until I had a foreign license.
So, that’s when I became a part owner of the bank as well as a manager of the bank and we restructured the equity holding a bit, we put in an ESOP plan for all the employees to do a stock ownership plan, and then we got our first license. And as a matter of fact, the Central Bank then asked me to be kind of an interviewer of other Russian banks who wanted international banking licenses, so I had to kind of give the okay or not to all these other now oligarchs of Russia, whether or not to have them get foreign licenses for their banks. So, that’s how I was involved.
Daniel Satinsky: So, originally was your client for the DialogBank, it’s like a pocket bank of the joint venture, in a way.
Peter Derby: Correct. Our first client was Dialog itself. Some of the workers had spouses that had little co-op restaurants, so we got a couple little restaurants. We got a guy that was running a taxi service. We got a department of Moscow State University that opened up an account, so we got little things. We had then joint ventures, JV Dialog had joint ventures in about 15 cities, so I opened up branches in 15 Soviet cities. Like Minsk was just a city, Belarus, but we opened up a branch because it was the Soviet Union, right? So, we opened up branches in 15 different cities in 1990.
Then the Soviet Union fell apart at the end of 1990 and we started having to then do individual, and we kind of got grandfather licenses in Kazakhstan and Belarus and so on. So, yes, it was a JV Dialog network and suppliers of JV Dialog, so it became that. Once I got the international license in ’91 we went and said okay, Pizza Hut, Coca-Cola, McDonald’s, you’re right there, would you do it, and they agreed. Radisson Hotel, yes. But Radisson said I’ll do it if you open a branch here. I’m like, well—
Daniel Satinsky: In the Radisson.
Peter Derby: Yeah, in the Radisson. So, I said okay, and we opened a branch, we licensed a branch, so it was kind of a we helped them, they helped us. Pizza Hut’s right across the street—
Daniel Satinsky: This was ’91 you said?
Peter Derby: We got the license in ’91, so this was late ’91-’92 when we opened up all these accounts. And then I basically went straight down the list of foreign companies, German, Japanese, Korean, you name it, Italian. We started to… Because it was either us or the Vnesheconombank. You had two choices.
Daniel Satinsky: Right.
Peter Derby: And as I mentioned to you when I talked to you before, how licenses are done, I go in to get my No. 1 license done and I see there’s a second bank asking for License No. 2, and I was like how did they get here? And it was the husband of the secretary of the chairman of the Central Bank, who ran another bank, who, she must have told her husband, and he’s like I need one of them, too, right? So, Mosbusiness Bank was two, Inkombank was No. 3 licenses in international banking licenses. But they were more industrial Russian. They were dealing with Russian ministries, and so they weren’t really competing with the Arbat store, that Irish store on the Arbat that was bringing in food and clothing and things like that.
So, I was doing import export and a lot of the foreign. I mean, I had Coke and Pepsi. I think I was the only bank in the entire world that had Coke and Pepsi in the same institution, because neither one of them would ever allow that. And I had to go to the board meetings both at Pepsi and Coke to actually get that approved, and we had to have a Chinese wall, policies and procedures, separate branches where neither branch would touch either one. So, we had one way down the southern part of Moscow, Dukat Place—Parus, actually. It was called Paros, the place called Parus, an office complex. That was Coke. And Pepsi was at the Radisson Slavyanskaya Hotel. So, it was an interesting development.
So, that’s how it started. We did the bank. We already had the investment bank, Troika Dialog, started in ’91 as well because of privatization. I was part of the privatization team. I think I told you about that stuff from last time on the big picture strategy stuff. So, that’s kind of how we developed the bank. And then as we moved forward, I wanted Russian citizens, as I mentioned to you last time, to feel fully fledged normal citizens of the world, they don’t have to have $20,000 in cash to travel to London, so we decided to create credit cards, bring ATMs, bring mortgages, bring normal consumer life issues. Through that we did other things. Like I mentioned, you had to choose what kind of credit card you wanted because of the elections coming, so people needed to make choices in life and things like that.
But DialogBank itself, we started to enhance our locations closer to where the businesses are, bring the branches to them, because believe it or not, the person from your bank had to—it’s like picking up the mail, going to your mailbox. So, literally they would come in the morning around 9:30, line up and get all of their last night’s payments that they—money received as well as to make their payments for today, their wires for today. So, it was like this physical trip to your bank every single day to get your statement. That’s how you did business. And so we brought the branches closer to their locations, so they didn’t have to travel all the way through Moscow. We connected computer systems to do it.
And then we had some pretty large oil companies out in Siberia, so I needed to figure that out, so I went back to the vice president of Bank of New York and I said look, you want corresponding banking, you’ve been so helpful and everything, how do you, like I trade and make payments through you before Swift, why can’t I use your technology to go to Siberia? And he said, well, you can. So, we ended up using the consumer banking software that I had with Citibank, Peter Derby’s personal computer software to make Peter Derby’s personal transfers at Citibank I used for the first transfers from Siberia in Russia. And then we used Bank of New York’s technology concept—we did an X.25 network connection and wrote the software based on that to actually have the Siberian oil companies make transfers. I basically put a branch out there and connected it by computers, and that’s how we set up the first thing. It was really using, you know like some people say use your American Express consumer credit card to start your little business in your garage.
Well, I actually used Citibank’s consumer transfer system for Peter Derby personally to really start the first transfers out of Russia to do that that way. Anyway, so we did that, we connected Siberia, and we started to really give normal banking services within the country and provided citizens with normal banking products for them to feel normal when they traveled anywhere abroad, and introduced the fundamental—
Daniel Satinsky: And is this, as the only one doing this I imagine you were somewhat deluged with people, you didn’t have to create demand, or did you?
Peter Derby: We did not have to create demand. We did have to educate. We created our own color scheme that was inviting. We used Moscow State University’s psychology department for this. We came up with a color scheme and a new font scheme, our own fonts that had no edges. And we used the concept of visualization, so like a telephone, you actually saw a little telephone next to T-E-L, let’s say, and then the phone number, so you could either read it, you could either see it, read it and, you know what I mean? We used different mnemonics and things like that to educate, to give people the knowledge.
But demand was always there. You just had to… Matter of fact, the demand was so strong that literally DuPont called and said I understand you’re turning down Conoco as a client, but you have to understand they’re an important company related to us, and we have a joint venture where we have to fund it, why are you turning it down? And I said well, it wasn’t Conoco that we turned down. We simply closed taking any additional clients because we’re overwhelmed with clients at Radisson Slavyanskaya and the lines are getting too long for those morning people coming in to do their payments and getting payments that I don’t want the decay of service to discourage my existing clients, right? I mean, at some point they don’t feel good.
And they said well, we understand that, but can you please add Conoco to us? And of course we did. It was like a $75 million joint venture investment. But they were shocked. The CFO of DuPont calling us and going guys, what are you doing? And we’re explaining it’s all about service quality. And he’s like okay, I get it, I respect that, but can you do me a favor and just add this one client to it? And I said okay, part of it. So, the demand was overwhelming.
Daniel Satinsky: And you were bringing staff on and having to train them?
Peter Derby: We were training them. We had to bring staff on. There was really no education. We had a psychology department from Moscow University assist because were getting people like the violinist for the Bolshoi [theather] wanting to come in and be a teller because the teller is earning $325 a month, and at the Bolshoi you’re getting $150 a month, so they wanted it for the money. So, we had to figure out whether they were right brain, left brain. We didn’t want to imprison you in your non-natural skill set and you’d be miserable just for the money. So, we did a lot of interesting things in that regard, too, but we built out the bank.
And I kept always saying it’s the Ministry of Finance. They kept asking me or the Central Bank why, when you wrote these rules, you didn’t make something exclusive for DialogBank. And I said, listen, I need 500 DialogBanks, not one, to Number 1, service the people, because I can’t do it all, and No. 2, we need a whole community here that can then develop and stand up and not be just the one entity taken out later. So, we just needed a lot of expansion. And I was perfectly okay with it as long as they did it with honesty and integrity. That was the core pedigree. Not always done by others, but that was our pedigree.
And it developed, and we were able to bring in a lot of these services and products. And I served on the anti-monopoly committee, I served on the capital markets committee, on the finance committee, on the American Chamber of Commerce. I bounced between all that to policy just to inform and to steer in the right ways of trying to do this as I saw it from more of a humanistic perspective as well.
Daniel Satinsky: You were doing an awful lot at once there. But you were a trusted advisor, I assume, and this is why they kept calling on you.
Peter Derby: I think they tested it early on in the first legislations I wrote, because one of Yeltsin’s senior people said we looked at this and we found nothing here that was special to you, yourself, since you wrote this, so please tell us where it is. And I said I didn’t do it. I mean, why would I do it? I want a level playing field. I think I’m good enough to do well. I may not win it, but I know I’ll do okay in a level playing field. And they’re like no, where is it? And I said no, really, this is it, this is the way I am.
And I think through that—Yavlinsky was key. Yavlinsky kind of really is the one who ultimately said this guy has the right intentions, and he’s the one that included me in a lot of the things. And his people tested me. Yeah, they really, you know. And it was early on, very early on in October, November, December of 1990. And Yavlinsky was even at dinner at my house when the Soviet Union fell apart that night in Minsk, Belarus. And so there was this—I don’t know if it was checking out or what, but there was this level of comfort and sincerity that was mutually felt, and history, right, because he was there at dinner, he knew my wife, he knew the family, he knew that this was a deeper commitment to the betterment of Russia.
And so yeah, they included me in quite a number of things on the Russian side, and I gave them my true, honest view, or I found good information to do it, right? I mean, I had Paul Volcker meet with them when he was going fishing, and I said Paul, I’ve known you for a long time, would you meet with the chairman? He’s like what am I going to tell him? But it was important. So, they got good, legitimate information. They made choices with it what they wanted to do or not do. But the initial help was sincere, was quality, was done well, and had real fruits of success. Real fruits. It’s what happened later that got destroyed.
Daniel Satinsky: Yeah. And as you expanded the bank, were you bringing in other expats or were you relying pretty much on—
Daniel Satinsky: So, I relied on Russians at the beginning entirely. Then I had a friend who was really a bright lady from our community here in Russia. She went over and married a fellow in Belarus, in Minsk. And I knew her when she worked at Dillon, Read in the bond market. She’s a math person, a quantitative person. And so, we just started the GKO market, right? We started the currency exchange market. We were the founders, with the Central Bank, of the ruble-dollar exchange market. It was a set of banks, the Russian banks at that time that were licensed. There was about a dozen of us. We were the founding members of the MICEX.
Daniel Satinsky: Okay.
Peter Derby: So, she came over to Moscow, heard I was there, visited me, and I said what are you doing? She goes well, I’m thinking Russia is progressing, and Lukashenko and Belarus is kind of stuck, they’re not going anywhere, and my husband, we need to leave Minsk and move to Moscow. I said okay. She said can I work for you? I said sure. You know some, you know, you’re finance, you’re Russian American. So, she came over to head up our capital markets team, help the trading of ruble-dollar currency trading and then GKO trading, so she came in. So, she was great because she was like I, real Russian, sincere, spoke the language. Her husband was from Belarus, really nice guy, was in the army, needed to get out, so he decided to go to law school, Moscow University Law School. And he did well and later on became a lawyer at Troika Dialog. And so, she came across.
So, now we had a team of like 12, 15 people and we’re getting more good Russians. I went to Moscow University’s president, rector, Sadovnichiy, and he kept saying what can I do, what can I do? I’m just on the board, what can I do? And I said you know what? You have the most important asset any institution has: it’s called people. Give me your best students. Give me your best finance students and so on. So, we got some students. Matter of fact, Ruben Vardanyan was one of their top finance students that then runs Troika Dialog. That’s how I got Ruben.
Daniel Satinsky: Oh, okay.
Peter Derby: Through that. And he was one of the top finance students. So, it was people. And then as we started to grow a little bit operationally. I needed a little connection to the West for Swift or Mastercard, Visa, so I had a fellow that I worked with, Louis Schwartz, who was also a very soulful guy, smart but caring guy. And I said Louis, I’m doing this stuff in Russia, you’re just finishing your MBA program in Chicago, you want to have some international experience, do you feel like coming to Russia? I’m happy to take you, or you want to go to McKinsey or Morgan Stanley? He’s like no-no, I’ll come.
So, he came over and he created in the trailers—we had, you know, the offices, we actually had to put office trailers were set up by a U.S.-Russian joint venture. And we took two trailers—actually, we first took half a trailer and had the Spaniard oil company have the other half of the trailer. Then we expanded, took the whole trailer, and that was our back office for Swift transfers. So, he headed up—I would go there. He had a jar of candy. Anybody that had, like did not say a bad word or curse or did something good would get a candy. Anybody that cursed had to put a ruble into another jar. And he had like team t-shirts. He was a Boston Red Sox fan and basketball guy, so he had like hats and t-shirts. And I was like oh my god, this is like this whole culture of all for one, one for all. He did a great job. I mean, Swift payments were done way ahead of time. I mean, they were amazing, almost zero error rate at the time. I mean, it was amazing. And so he was wonderful.
So, now we have the first two Americans, and everybody there is like this is the best thing ever, because they’re knowledgeable, they treat us with respect, they include us, they’re wonderful, everything was great. Then as we started to try to get additional Americans, that maybe we went a little too fast, maybe we didn’t, you know, it’s like you’re supposed to—as they say in Silicon Valley, hire slow, fire fast. As we brought some of the additional Americans, not all of them had that level of wonderfulness to them, and they were a little bit more short on patience. They were a little bit more me-me-me. And things at times unraveled with those.
And in general, it’s almost simultaneous with Russia as a country starting to question America’s true intent with movement of NATO and the whole Kosovo crisis and everything else, and the Russians were like okay, Louis and Sanya are amazing, Peter, but who the hell is this guy? He’s rude, he’s demanding, he’s condescending, he’s drunk all the time. I don’t know, it was like a whole bunch of things. He wants bonuses, but not for us. It was just…not all of them worked out, let’s put it that way.
Daniel Satinsky: Yeah. And now your focus was on the bank more than on Troika Dialog?
Peter Derby: My focus was on both. However, the bank was 95% of the assets, revenues, expenses and everything. The investment bank was just building up, was just getting going. We just got a contract to represent Merrill Lynch. That gave us enough money to pay everybody’s salary, enough to send people to Merrill Lynch’s training programs, so it kind of got us going. But there wasn’t yet an industry, right? We were just starting privatization. And as the voucher program got going, that was the first thing, was issuing—we did the first red herring for Nipek Oil Co., and we sold it at a table out on Manezhnaya Ploshad*, and set up a desk for people to sign up for shares, you know. With a real red herring. It was called the red herring in Russia, because before an IPO you used to have this thing called the red herring in America. It was a document, a prospectus that was the informational prospectus. So, we followed American basic standards at the time.
So, they were just getting going. And the team was a really great team—Katya Kubasova and Ruben Vardanyan ran it. Katya Kubasova’s dad was a Soyuz Apollo astronaut that actually was the head commander of that mission, Apollo mission—Soyuz-Apollo mission on the Russian side. Anyway, so they ran it, and they were doing it out of an apartment. I would meet with them. But yes, I think they were a little orphaned because they probably needed 40 hours of my time a week and I gave them four. So, they had to do things in the school of hard knocks. They would literally meet with me for the four hours. I would say yes, this direction, let’s do this, connect with this, and then they would just have to go and do it. So, I would say they did a lot of it. I gave them the capital, I gave them the connections, I gave them the support, but they actually executed it.
Daniel Satinsky: Right, right. You had a vision that this was going to grow as the privatization continued, that this was important.
Peter Derby: I believed in Glass-Steagall. I believed in the separation of investment banking risk and commercial banking risk. Commercial banking risk, prudential, government-backed, FDIC insured, people backed. Investment banking you’re at your own risk. Capital to be lost, bankruptcy to occur, separate risk, separate entities. You could have cross ownership, but it has to be Chinese walls, so we did those kind of things. So, I created it in the image of Glass-Steagall, which we had in America at the time, by the way.
Daniel Satinsky: Right. I remember.
Peter Derby: It was just being unraveled by Larry Summers and Phil Gramm, but it was still there. And Gramm-Leach-Bliley amendment and all that that occurred during that time. But I built it as believing in that principle and trying to help them as much as I could. But the bank alone needed four Peter Derby’s’ time, and then here. But I didn’t want to hold them back, either, right? I didn’t want to say you can only do like Yeltsin; you can only do what I approve. I hated that about Yeltsin because you can’t approve everything. The whole country can’t wait for your one approval because it just doesn’t work that way.
So, I just said to them you do whatever you guys need to do, and I’ll meet with you consistently, at least—it was usually twice a week. It was like four hours each time. And I would try to help them out quite a bit. And then if they had questions of a material nature they would come to me anyway on it, and that was part of our agreement—if it was really material you come, and I gave them time when they needed it to do it. But they really had to be doing a lot on their own. And the timing was more intellectual building—building a database of foreign red herrings that you can then use as boilerplate, learning what it’s about to figure out how we’re going to do it when it starts up in six months or a year.
And Dialog, at that time, JV Dialog, hired Troika as the first client to analyze each of their 15 city subsidiaries, how well they’re running their operations and whether we should create an internal stock exchange so that capital by the CFO at headquarters could be given out based on not you just wanting it, but based on who needed it more. It would be like a capital market, an internal capital market where everybody—so you have $5 million at headquarters, everybody bids on—he offers 5% interest rate, he offers 7%, 12%, 20, 30%, allocated to the most returns.
And so we created internally a document to create the internal Dialog, JV Dialog exchange, internal exchange with shares of capital amongst it, which then quickly—it never happened. Those documents went to the Minister of Finance to create the Moscow Stock Exchange. The original Moscow Stock Exchange concept was JV Dialog’s internal exchange. The same team went over there to do it, Pavel Teplukhin and that whole group. And Pavel was…there were two fellows, Pavel Teplukhin and Vladimir Kuznetsov were CEMI students, or Moscow State University students and CEMI students that went and got an MBA abroad, Columbia University MBA and London School of Economics. And they came back to CEMI, and the director was the chairman of the bank. He gave us those people to run—like Pavel Teplukhin was helping to do the stock exchange analysis. Then he went over to Harvard, I think, for a program, or back to the London School of Economics for a program and Vladimir came in to run the corporate finance group to write those first red herrings and things like that. And then he opened up Goldman Sachs’ office for Goldman Sachs.
Daniel Satinsky: Wow.
Peter Derby: Which is a little bit of a crazy story how Goldman Sachs tried to take my entire company while they invited me to breakfast. They invited me to breakfast, had me wait there two hours for their London person to come. He never shows up. Then this assistant, when I was going to leave, said no-no-no, he’s coming, he’s coming, he’s coming. He doesn’t come. I finally leave two hours later. I go over to Troika and he interviewed all my employees at Troika to hire all of them. So, he kept me out of Troika for two hours while he tried to hire all my employees.
And even with that happening, we helped them open up their office because it was important to have a Goldman office, and they put Vladimir as their person. So, they took our most senior guy, but all of the other employees stayed at Troika, did not go with Vladimir. He ended up hiring his own people. So, that’s the ethics, unfortunately, that Goldman taught my first employees, and that was not a good thing. And I tried to explain to them that that was not a good thing that they did. But that’s what they did. That’s the facts.
Daniel Satinsky: That’s what they did. And so what happened—
Peter Derby: And by the way, we even helped Citibank open its offices in Moscow, because they were one of the first licensed banks before the revolution, and we helped them open up their offices and licensing processes. And after all of that they tried to hire my Radisson branch manager and tried to pay her to take all my policies and procedure manuals, to steal them for their office, of which I ended up complaining to Paul Volcker, who I think got the guy fired in the end because he was on the board at the time.
And we gave them our policies and procedures in the end. We said look, don’t bribe us. We’ll help you because we need you here as a corresponding bank. They, in the end, became also a domestic bank and competed with us later, but it doesn’t matter. Again, I needed 500 DialogBanks. So, both Citibank’s unethical behavior as their first entrance into the marketplace and Goldman Sachs’ unethical behavior as their first entrance into the marketplace really saddened me because it was not the example I wanted for Western institutions, how they gave birth to their Russian entities. And even with that, we still helped them.
Daniel Satinsky: Do you think that kind of behavior then continued and sort of influenced the development of the markets?
Peter Derby: Yes, because it continued from CSFB, it continued from—it just continued. I mean, look, that’s why we have the SEC. That’s why—go look at the Foreign Corrupt Practices Act, and how in the last ten years the SEC has finally taken that pretty seriously, and how many people have gotten caught up in that. And the issue comes down to do you do—if you’re in Rome, do as the Romans do, and if you’re working in a country that the government is entirely corrupt, because they know they’re only there for our years, this is their only time to win the lottery and to make the money, and how are you going to run a business based on that.
That, unfortunately—I mean, the classic, most of these companies have a domestic joint venture partner. The purpose of that joint venture partner is to grease the wheels. And for Foreign Corrupt Practices Act the low-hanging fruit is look at every joint venture that has a domestic partner and then see the behavior of the domestic partner, and the foreigner just goes like this—[covers face]—know nothing, see nothing, hear nothing, you know what I mean?
Daniel Satinsky: Yeah, yeah.
Peter Derby: So, look, to me it was sad because it’s the beginning of a market, and you want to teach people how they should behave. You want to teach them etiquette, you want to teach them practices, policies. You want them to understand right and wrong and you want them to do things, right? That’s what you want to do. And those two institutions, or three, for that matter, CSFB, I mean, they, you know, and the ones directly with us, they really didn’t put their best food forward.
And I needed to say we’re going to help them because they’re still great institutions. Their local people decided to go the quick way. The quick way is always not the right way. The right way is the hard way. But let’s forgive them, understand it was wrong, help them because we need the institution in general, and teach them the harder way or the right way is, maybe just come and ask for help and maybe you get the help. And in our case, we will offer it to you. And so, we kind of turned it around on them, right, and said we’re here to help you. And they were like okay.
And I think our people understood that, and they also understood our culture and our deep committed passion to either do it the right way or not to do it. Like my grandmother used to say, do the right thing and whatever comes with it comes with it. And let’s do the right thing, let’s sleep well at night, and we have three tomatoes in the morning? Great. We have 20 tomatoes in the morning. Great. But we’re not interested in getting the most tomatoes. We’re interested in doing the right thing and everything else will be proportionate, and that’s how we did it.
Daniel Satinsky: So, what happened to the Dialog joint venture? What fate did it meet?
Peter Derby: I don’t know as of today because when I left it was still in existence. I know that the different branches of Dialog, some of them really did well. St. Petersburg did super well, Nizhny Novgorod super well. Another one in Siberia, a city where Sasha was from, really well. There was a few instances where…our director was murdered in one instance. Not clear exactly how. That was towards 1998, when I was already leaving, but I heard about that.
The St. Petersburg one, Vitaly Savelyev was chairman now of Aeroflot. I think today he’s the Minister of Transportation of Russia, so they really did—they went into real estate, technology. And when I was there, they were basically a private equity group. The center just had all these…the regions got so big and so independent that somebody said real estate is my biggest thing, I’m owning all the different buildings in town, other ones said I have great computer programmers, I’m doing computer programming, and so they kind of went off into their own pieces of strength. And the headquarters was kind of a private equity holding company of all these pieces, and they were still clients at the time that I left in ’98.
Daniel Satinsky: In ’98, okay.
Peter Derby: And today I don’t know, to be honest with you.
Daniel Satinsky: So, they were opening like separate companies in all these different—
Peter Derby: They got big enough that each one really did their own thing.
Daniel Satinsky: And then the bank, DialogBank?
Peter Derby: So, the bank itself, so then we had Troika Dialog, we had DialogBank, and we created the Development & Restructuring Bank. It’s called DRB, but it was Development & Restructuring Bank. It was kind of like EBRD. And people at first gave me a hard time—it’s like Derby Bank, DRB Bank. But it was really EBRD kind of concept.
And the reason is that when I worked on Wall Street at NatWest, I was part of the corporate finance team, and we also had a project finance team and a credit, asset-backed lending team. And the asset-backed lending team was kind of unique. So, we had instances where AT&T wanted to sell its phone systems. That’s an asset-backed financing, and we could charge different rates for these risks. So, I wanted to say there is corporate risk, general corporate risk, and then there’s also asset-backed risk—mortgages, real estate backed risk, leasing of equipment, trucks, cars risk. So, it’s a different kind of risk. Let’s create the Development & Restructuring Bank to bring about an expansion and get London and Washington, EBRD, World Bank and other banks to fund this risk separate from the general corporate risk, and let’s do sale leasebacks, leasing financing, mortgage financing and so on, so created this other bank.
And then I had my son born in ’93, I had my second born in ’96. My wife kept saying, you know, we only came for one year, and every year it’s one more year, and now we’re up to six years. We have two sons. One’s going to soon go to kindergarten, and he’s not going to kindergarten with bodyguards; we need to go home. So, at that point I started to think okay, how am I going to free myself of this? So, we thought possibly to sell the whole unit, and we started to work with Ruben, who I made president of Troika to create leadership succession, [Boris] Lipiainen to head DialogBank, leadership succession. We started to get bids to buy everything.
At the same time, I knew there were separate risks of each institution, Glass-Steagall. The U.S. is going to universal banking at this point, Glass-Steagall is gone, Gramm-Leach-Bliley amendment legislation is through, and the universal banking concept, Citibank, universal bank, all that stuff, European banks. But as I saw the analysis of bidders for the group, I realized they’re going to keep Troika and they’re going to spin off the bank.
And I knew at that time the bank was the backbone. Without the bank Troika couldn’t be what it is. All of its credit line was from the bank. Tens and tens of millions of dollars of trading support was from the bank. All of the clients of Troika had accounts at the bank. The seamlessness for a client to send money and buy stock in RAO UES or whatever was trading at the time, Gazprom, the only way they could do it is through this one stop shopping. They don’t know DialogBank, Troika, they simply know they send it, it’s done, and it’s taken care of. When you break that apart you may not have that seamlessness going forward anymore.
So, I realized it wasn’t going to happen the best way and chose not to do it, and thought okay, maybe Sberbank. So, we had a discussion with Sberbank, and we went a very long way, to the point where I thought we actually got our valuations between Sberbank and us. Sberbank was trading at the time. The only thing is Sberbank was trading around $600 million and we were trading around, value around $300 million, $250 to $300 million, so we would be close to over a third of the bank on a combined basis. And they decided no, you can only be 25 minus one share because we can’t have you owning such a big part of a state bank.
Daniel Satinsky: Yeah, that golden share, right?
Peter Derby: Yeah. So, I said that’s okay. I’m okay with that, 25 less one share. And then my team at Troika said no-no-no, this is a commercial bank, we can’t do this. They don’t understand our business, you’re destroying Troika by doing this, we’re all walking out. In a nice way. They didn’t say it may be directly, but they basically said we don’t… You’re leaving, you’re leaving us at the realm of Soviet managers, and what are you going to do, be like this honorary chairman showing up once a year back in New York? So, you’re throwing us into the wolf’s den, and these people don’t understand what we do anyway, this is bad, really bad, we oppose this.
So, I backed off from the Sberbank deal. Looking back now it was probably the right deal. I should have then just stayed on for a few years, even though my wife and kids would have went back, and I think it would have been the best thing, because we would have been the private bank, the Coutts of Sberbank. And in the end Troika was sold to Sberbank by my own employees that told me no. And anyway, so.
So, then we decided—they came to me and said you taught us about leveraged buyouts and things, we actually put one together. We got Bank of Moscow to buy out Troika itself. I know you think that’s a problem because it’s not with the bank, but now we have Bank of Moscow financing, so if DialogBank doesn’t continue to do things seamlessly for us, Bank of Moscow will, so either way we’ve got two opportunities, so don’t worry about it, let’s do it. And let’s do it at those same valuations but just for Troika’s piece of the valuation, which was the smaller piece at that time, a pretty small piece of the whole of DialogBank at the time was Sberbank’s analysis. And I said okay.
And I gave away 35% of the shareholding to the employees, and then my piece that was left I gave to Ruben Vardanyan as a buyout with a loan from Bank of Moscow. So, in a way Bank of Moscow purchased it with the opportunity for the employees to buy it out at the time. So, after giving away 35% to the employees, then I gave my piece to the leadership person, team, to be bought out, if they could, from earnings of the bank, and then they would own it, which is what they did.
And then DialogBank was standing on its own with its own capital bank, the restructuring bank, and we had several European banks come in to buy it. And my crew there also was a little worried at the bank because foreigners coming—they were worried about the Russians because they didn’t understand private banking, you know, a private bank, and they were worried about the foreigners that, as the wind blew, because ’97 now happened, this is now spring of ’98, as the wind blows they can just shut it all down and close up shop and all that.
So, there was two good bids that we received, and both bids required that for five years I stay on as CEO, which I chose not to do. So, we decided that the employees would just simply run the bank, and I will still move to the U.S., open up a branch in the United States and just, you know, it is what it is. I always wanted of the Russians, for the Russians, by the Russians, and it’ll just grow. And the shareholders were still Moscow University, myself, JV Dialog, and the employees had an ESOP program there already in place as well, and that was it. That was like in February, March.
Then in April, May, we started to see the whole ruble collapsing and Viktor Chernomyrdin quitting and getting thrown out as prime minister, Sergei Kiriyenko coming in, then the banks starting to lose Western financing, and then you had the whole collapse in August. And with the August collapse, we were the only bank on the right side of the collapse. We had no forward contracts. We were completely solid. On the other side were all the oligarch banks who did all these crazy forward contracts, doing $200 million in forward contracts when they only had $50 million in capital because they figured they’ll just get paid on $200 million, which they didn’t have. People were willing to take that credit guarantee.
So, in the end they decided to, instead of holding accountable the institutions that did what they did, the five or six of them, decided to nuke the whole place. They created a financial nuclear winter which we got caught up in, because we were on the right side of it, but once they blew it up it didn’t matter what side you were on. And then I went to the Central Bank and said look, I was on the right side of everything, we are not involved in this, you, the Central Bank, just stole all our money, not like in ’91 when the Soviet Union collapsed and you told us we had to send all our money to the Central Bank, you just now froze my money. I was one of the 26 clearing banks, which means I had all my money in the Central Bank. You just froze all my money.
And they said you’re right, your balance sheet is good because it’s only our debt, our guarantee, so it’s like we’re not defaulting on our own money to you, so we’ll give you liquidity. So, I can’t give you access to the GKOs because we just froze them for everybody, so I can’t make an exception to you, but what I’ll do is I’ll take as collateral the GKOs and give you a credit line on top of it because of your balance sheet. And so, we created quantitative easing for the first time ever, like Bernanke did in 2008. We did it in 1998, and the Central Bank approved it. We got all the liquidity, so all my payments were working because all my foreign capital was still good, all the dollars were dollars, but all my ruble capital—and I was perfectly hedged—so all my ruble capital was good, too, and I was using it {as a percentage} to clear payments.
That lasted for about a month until the Russian government replaced the chairman of the Central Bank, Dubinin, and put a new one in, and he said you know what, Peter, it’s over, I’m not doing that, because people are coming to me and asking me for what they did for you. They want quantitative easing, they want guarantees; we’re not doing it. So, that’s it. Now I’m frozen. Now all my ruble clients are coming saying why can’t I make my payments?
So, what we did was we went to the oil clients, and the oil clients basically said—we said to them you have all of these ruble obligations to the state for export taxes, so I’m going to transfer you the rubles, you give me the dollars that you would have needed to convert, and I will transfer for you these rubles to the tax authorities since we are effectively transferring government obligations, GKO rubles, between government agencies. And that’s what we did for about two months. So, we transferred the tax authorities the “GKO” rubles, because it was allowed. They had a tax account. The rubles were still transferring. And the money that we got from their exports, the dollars, we would convert from time to time into new rubles to make the payments for the Russian clients, and everything in rubles. And that was going great.
Then the tax authorities come in with their masks and guns and lay down my entire accounting department on the floor saying you transferred me rubles that we don’t have access to because the Central Bank shut down “GKO” rubles being transferred from all the banks’ accounts. And so, we got stuck again in that regard. Even though the constitution allowed it when the government has obligations to the banks, and GKO were such obligations. So, at that point the Russian banks decided to do what they called good bank/bad bank. So, they went, and they took all the bad stuff, threw it in here, into the current bank, and then created a new bank where all the new money that the clients were having from new revenues and expenses were coming in again. So, they did what they called good bank/bad bank.
I decided I don’t like this whole theory. I don’t like doing what I thought might be a dishonest things like this, this is not working out. And so, at that point I was thinking of just paying everybody back, shutting everything down. And some of the clients said look, we don’t want to stay at DialogBank through this, you have the restructuring bank, it’s solid, there’s no rubles, no payments, no GKOs in there, we want to open accounts there so we can continue without any problems. So, in the clients best interests we did. So, a lot of the clients did move over, and de facto, I guess, we too had a good bank/bad bank issue. That wasn’t the way…we didn’t set it up for it, for that thing.
And I made a decision at that point, I’m out. I’m out. This is not the way this is going to go. They’re starting to hit us up with tax police coming in, threatening to put all my executives in jail, all of this. This isn’t happening. So, what we did was we basically liquidated DialogBank by paying everybody out, shutting it down, giving the license, because the judges were foreclosing, the tax authorities were foreclosing on us.
So, in essence the tax authorities stole the bank, stole the assets of the bank, stole the buildings, stole the shares, everything. And in the meantime, before they completed the steal, we tried to get everybody out so it was only on—so if you’re going to steal it, you’re going to be the only creditor left. You’re not going to steal it and then not give the others. So, we got as much as we possibly could, which I’d say was 99% of everybody out with only obligations to the tax authorities. And their theft was basically what our equity was, and they stole quite a bit. They stole, I think, from us maybe $250 million in the end. At that time.
Daniel Satinsky: And this was ’99?
Peter Derby: ’98. And all the banks today are worth around $6 billion, so they probably stole an institution that would have been worth $6 to $10 billion in the end. That’s what they destroyed.
Daniel Satinsky: Wow.
Peter Derby: So, we shut that down. They took it over. They stole it all. And the other bank, the restructuring bank, actually Societe Generale bought. They bought the bank. They wanted the license; they wanted the mortgage lending and all of that. And the idea was that IFC would finance it, because IFC was financing our—already gave us the credit line prior to that. So, IFC came in, and Societe Generale bought it, and to this day—I think GE Capital then bought it, I think parts of it since then.
And I left. I said okay, Troika I already sold to the employees, this bank was going to run for a while, support Troika, still be there. Because of Glass-Steagall, they wanted me to own a piece of Troika. I said no because I didn’t want to, you know, I was—because DialogBank itself was starting to build its own trading desk, so I didn’t want to feel like I was conflicted, so I said no, but thank you. I was going to even be on their advisory board, and I think no, I think if I’m advising DialogBank how to grow I can’t really do this for conflict of interest. But we kept them as a strong client, I mean, the relationship as a pure client continued going forward. And so I was left, at that point, in—so I came back to Russia after the collapse in ’98 for three years to work out this liquidation aspect, and in July of 2001 is when I left and said—[washing hands gesture]—done. This is the collapse of Western advice.
Daniel Satinsky: Wow.
Peter Derby: It started with the… Little chinks in the armor was some of the behavior of Western institutions coming in. Those were not good. Little chinks in the armor. The forming of the oligarchs in July of ’95, big, big chink in the armor. No, before that, choosing Gaidar’s path of economic reform was the second chink in the armor. Creating the oligarchs in ’95 in July was the third chink in the armor. I think the whole U.S. policy collapse, and Russians no longer admiring or trusting the West or America was maybe the fourth, and then the collapse in ’98 was the fifth.
Daniel Satinsky: Yeah.
Peter Derby: And the Americans were there. I mean, David Lipton and Larry Summers, you know, the Russian Central Bank said look, I need help, here’s what I need to try to keep this afloat—these banks made all these bets on the ruble rate, I can’t hold the ruble rate because that’s Mother Nature right now, and I need either a huge line of credit to hold it, because if I can’t hold it these banks go bankrupt. And the Americans said—and the Russians thought they would not let a nuclear power go under, just like long-term capital management. But David Lipton said, you know, sorry, I got word from the U.S. we’re not helping you. And at that moment the Russians drew down the IMF 4.7 billion, I think it was. They maxed out on the IMF credit line, drew the money down, and then the next day blew the whole thing up. None of that needed to happen. None of that needed to happen.
So, from helping to create the entire capital market system from its early seed to using the scissor to chop off its head at the end.
Daniel Satinsky: Yeah. So, have you followed the development of that system since then? Obviously, this was a painful experience.
Peter Derby: Yeah, I kind of just…I just…that was it.
Daniel Satinsky: Yeah,.
Peter Derby: I mean, Andrei Kozlov continued. As I said, he was murdered, unfortunately. He was one of the guys that really demanded integrity in the system, and they killed him for it. The foreign volunteer corps, what is it, the Financial Volunteer Corps really did help a lot more things out. I think they did work there. They probably know better what that all is. Andy Spindler was head of that. So, I thought that was—that was with John Whitehead, and Paul Volcker, and Bill Donaldson. They did a lot of things. And then they went outside of Russia. They went into Mongolia, and Ukraine, and Georgia, Armenia and things like that. But they’re the ones that kept up with it.
I kind of washed my hands and said when the core isn’t right… I believe in sustainable, ethical wealth creation, and I think maximized wealth creation can only be done in an ethically sustainable way. And when I feel that that is not the case, you’re compromised. It’s like joining a club and before joining it you have to do something that you’re so embarrassed that they got you at any time in the future. I want freedom to choose every day who I want to be with and how I want to be there, and I don’t want to be compromised. And I just felt it was better to say I’m no longer happy with this and I’m going to pay you out, and you’re all going to find something else, and I’m no longer going to spend my sweat equity to do this.
And I offered, I mean, the institution, for the others to continue. I already transferred leadership to Boris Lipiainen. He was the president of it. I was just chairman. So, I was asking them. But they were under threat to go to jail. I mean, they were constantly being visited by the KGB, and the tax police, and in the courts, so two of them had to flee the country because they were worried that our liquidation wasn’t going to happen in time and all that. And I think in the end, you know, it was a mutual decision for everybody.
Daniel Satinsky: And did any of the…during this period did any of the Dialog people, the people you began with, they weren’t able to help with the government? They weren’t able to lobby on your behalf?
Peter Derby: No. They were doing their own thing. At that point they wanted us to fund so many of their projects, and they were not getting credit. The credit committee was saying no, this isn’t good enough, that’s not good enough, we’re not going to do it. Let’s just say they didn’t think DialogBank was their pocket bank. It wasn’t. It never was. I mean, for clearing and banking services yes, but for financing it wasn’t simply you’re my bank, give me the money. You needed to go, and some people got it, some people didn’t, so there was more of an arm’s length relationship with them at that point, and so they just wanted to make sure their equity, they were going to get, through the bankruptcy liquidation they were going to get their piece and that was it.
And they actually already started to sell down their piece even before this. When Troika was sold they were like okay, we’re going to sell down some of our piece, too. And they did it. We bought it back in a Treasury stock purchase for employees, created the employee stock option plan that way. So, they were kind of arm’s length. I think they were willing to go to court and help us a bit, but they weren’t…there was not much help, because I actually helped the tax police to be formed, right?
So, the tax police was formed with two KGB generals. I met with those two people in their first weeks on the job back in ’91–1990 into ’91 with Yaroshenko. And I knew them. And I went to them. And they tried to go to the Moscow head of the tax police. And in the end one of our clients had the daughter of the head of the tax police working there. One of our American joint venture—it was a U.S. joint venture. Had the daughter of the tax police head in Moscow worked there. And our president, in the meeting to say look, we’re having a difficult time, we’re trying to work this through, but the tax authority is constantly coming with masked men and butchering, and, you know, I mean, our…telling all our women to lay down on the floor, and he was disgusted with them.
So, the daughter told her dad that DialogBank’s president thinks you guys are beasts and are doing things incorrectly, so there was zero chance to change his view about DialogBank. I had the federal head of the tax police tell him to stop because it’s not right. I had the head of the parliament committee say stop, this isn’t right. And him telling them to take a hike, it’s personal. They accused my men of coming in. And the fact was they did come in and laid our people out. And they were doing it on behalf of two Russian clients who probably did pay them to do it, because they wanted their payments right away. They didn’t want us to wait for this thing with the oil companies to figure it out and all of that.
And so he got personally offended, and we couldn’t back him off, and at that point there was no backing him off, and so they were confiscating and stealing our bank. It was clear to me that’s what’s happening. It was clear to my guys that’s what’s happening. And they had a choice to fight it and possibly end up in jail or flee the country while I liquidated it, and that’s what we did.
Daniel Satinsky: Wow. It’s an amazing story. Have you told this story in this way—
Peter Derby: No, never. Never.
Daniel Satinsky: Okay. Well, thank you for being willing to tell me the story because it is an amazing story, and there’s so much…it’s so rich a story, if you will. I’m going to have to figure out how to use it and get your permission about this because—
Peter Derby: The positive side is, interpersonal relationships, sincerity, integrity, good meaning, you know, really intellectual work and building a bond with people who are going to do something is really important, right? Like the president of China today, you knew he was going to be president ten years ago, right? During the Obama administration Obama said look, Biden, go be friends with this guy; in a few years he’s going to be president of China. So, knowing the people that are kind of coming up and somehow meeting them in the right terms, the right just happenstance, and it just works out, and there’s trust, and their desire, your desire, it all works. Those personal relationships matter.
DialogBank got shut down because of a bad personal relationship. We had a president who went into a meeting—I wasn’t there—he expressed his frustration and his shock and demise of the behavior of the local tax police, being shaken down like the Mafia by these people with no understanding of what’s really going on, no intellectual nothing, and that, heard by a daughter who tells her father, whose father says I’m taking revenge, and then no one can stop him. Literally nobody could stop him unless it was Putin at the time coming in, which, you know, it just wasn’t going to happen, right? His commitment was a commitment.
And so, everything that happened wonderfully happened because of personal relationships and the collapse happened because of a bad—not with me. With me the wonderful stuff happened because of my wonderful relationships. The bad one was somebody else’s within my team, the president, a trusted—he just came back from getting his MBA. I sent him to MIT to get his MBA because Citibank’s chairman also, John Reed, was an MIT grad that was head of Citibank. And he was an IT guy. He ran all of our IT. Former smart young KGB guy, as I mentioned, a brilliant, brilliant kid.
And he came back with his MBA in June, the collapse in August, he now takes over after he ran it for a few months, went and got his MBA, came back, now is running it for a few months while I left, and all of a sudden this all happens. And during this three years following the Russian government default by freezing the GKOs I was there, he was going to visit clients as the president to tell them how we were going to try to come out of this. Unfortunately, he expressed his true view, but sad view, and the person in the room, not knowing that, created the complete collapse and theft of the bank. So, a personal relationship killed it as a personal relationship started it.
Daniel Satinsky: Yeah. Wow.
Peter Derby: No different than Bear Stearns going down, by the way. That was a personal relationship that made sure Bear Stearns wasn’t coming out, either.
A personal relationship that somebody was offended at previous behaviors that therefore wasn’t willing to help them.
Daniel Satinsky: Wasn’t willing, yeah.
Peter Derby: And waited for them to collapse, and then a few hours after they collapsed, they helped all the other banks. So, why didn’t they do it a few hours earlier? Because it was personal.
Daniel Satinsky: Because it was personal, yeah.
Peter Derby: So, it happens in the West, too. This is not a Soviet—I’m not trying to say Soviets are bad. I’m just trying to say the importance, if you want to have ingredients of reform, personal, ingredients of collapse, sometimes personal, too. Yes, maybe you over leverage yourself, pure business move, you bet the market the wrong way, it’s over. I agree that’s part of it. But sometimes it’s personal.
And my story is that entire timeline, right? I was one of the very first ones to help. I helped really well at the core of the changes. I allowed fruit to flourish. Like Troika on their own grew a lot. Troika’s main success was the people at Troika. They’re the ones that did it. I gave them a few avenues. If they didn’t take them nothing would have happened. So, I’m not taking credit for Troika’s real flourishing because it was done by them. I’m taking the credit for their guidance and giving them the resources to take to go there, but they went there. I didn’t do the work for them, they did it.
And then as the overarching mood towards America changed, things changed, the collapse, with America pulling the rug out from under it—for good reason, I mean, too—they were like look, we’re just not going to keep supporting this behavior. That collapse created a lot of the other things. And then how the personal relationships just collapsed here, too.
So, I realized it wasn’t going to happen the best way and chose not to do it, and thought okay, maybe Sberbank. So, we had a discussion with Sberbank, and we went a very long way, to the point where I thought we actually got our valuations between Sberbank and us. Sberbank was trading at the time. The only thing is Sberbank was trading around $600 million and we were trading around, value around $300 million, $250 to $300 million, so we would be close to over a third of the bank on a combined basis. And they decided no, you can only be 25 minus one share because we can’t have you owning such a big part of a state bank.
Daniel Satinsky: Yeah, that golden share, right?
Peter Derby: Yeah. So, I said that’s okay. I’m okay with that, 25 less one share. And then my team at Troika said no-no-no, this is a commercial bank, we can’t do this. They don’t understand our business, you’re destroying Troika by doing this, we’re all walking out. In a nice way. They didn’t say it may be directly, but they basically said we don’t… You’re leaving, you’re leaving us at the realm of Soviet managers, and what are you going to do, be like this honorary chairman showing up once a year back in New York? So, you’re throwing us into the wolf’s den, and these people don’t understand what we do anyway, this is bad, really bad, we oppose this.
So, I backed off from the Sberbank deal. Looking back now it was probably the right deal. I should have then just stayed on for a few years, even though my wife and kids would have went back, and I think it would have been the best thing, because we would have been the private bank, the Coutts of Sberbank. And in the end Troika was sold to Sberbank by my own employees that told me no. And anyway, so.
So, then we decided—they came to me and said you taught us about leveraged buyouts and things, we actually put one together. We got Bank of Moscow to buy out Troika itself. I know you think that’s a problem because it’s not with the bank, but now we have Bank of Moscow financing, so if DialogBank doesn’t continue to do things seamlessly for us, Bank of Moscow will, so either way we’ve got two opportunities, so don’t worry about it, let’s do it. And let’s do it at those same valuations but just for Troika’s piece of the valuation, which was the smaller piece at that time, a pretty small piece of the whole of DialogBank at the time was Sberbank’s analysis. And I said okay.
And I gave away 35% of the shareholding to the employees, and then my piece that was left I gave to Ruben Vardanyan as a buyout with a loan from Bank of Moscow. So, in a way Bank of Moscow purchased it with the opportunity for the employees to buy it out at the time. So, after giving away 35% to the employees, then I gave my piece to the leadership person, team, to be bought out, if they could, from earnings of the bank, and then they would own it, which is what they did.
And then DialogBank was standing on its own with its own capital bank, the restructuring bank, and we had several European banks come in to buy it. And my crew there also was a little worried at the bank because foreigners coming—they were worried about the Russians because they didn’t understand private banking, you know, a private bank, and they were worried about the foreigners that, as the wind blew, because ’97 now happened, this is now spring of ’98, as the wind blows they can just shut it all down and close up shop and all that.
So, there was two good bids that we received, and both bids required that for five years I stay on as CEO, which I chose not to do. So, we decided that the employees would just simply run the bank, and I will still move to the U.S., open up a branch in the United States and just, you know, it is what it is. I always wanted of the Russians, for the Russians, by the Russians, and it’ll just grow. And the shareholders were still Moscow University, myself, JV Dialog, and the employees had an ESOP program there already in place as well, and that was it. That was like in February, March.
Then in April, May, we started to see the whole ruble collapsing and Viktor Chernomyrdin quitting and getting thrown out as prime minister, Sergei Kiriyenko coming in, then the banks starting to lose Western financing, and then you had the whole collapse in August. And with the August collapse, we were the only bank on the right side of the collapse. We had no forward contracts. We were completely solid. On the other side were all the oligarch banks who did all these crazy forward contracts, doing $200 million in forward contracts when they only had $50 million in capital because they figured they’ll just get paid on $200 million, which they didn’t have. People were willing to take that credit guarantee.
So, in the end they decided to, instead of holding accountable the institutions that did what they did, the five or six of them, decided to nuke the whole place. They created a financial nuclear winter which we got caught up in, because we were on the right side of it, but once they blew it up it didn’t matter what side you were on. And then I went to the Central Bank and said look, I was on the right side of everything, we are not involved in this, you, the Central Bank, just stole all our money, not like in ’91 when the Soviet Union collapsed and you told us we had to send all our money to the Central Bank, you just now froze my money. I was one of the 26 clearing banks, which means I had all my money in the Central Bank. You just froze all my money.
And they said you’re right, your balance sheet is good because it’s only our debt, our guarantee, so it’s like we’re not defaulting on our own money to you, so we’ll give you liquidity. So, I can’t give you access to the GKOs because we just froze them for everybody, so I can’t make an exception to you, but what I’ll do is I’ll take as collateral the GKOs and give you a credit line on top of it because of your balance sheet. And so, we created quantitative easing for the first time ever, like Bernanke did in 2008. We did it in 1998, and the Central Bank approved it. We got all the liquidity, so all my payments were working because all my foreign capital was still good, all the dollars were dollars, but all my ruble capital—and I was perfectly hedged—so all my ruble capital was good, too, and I was using it {as a percentage} to clear payments.
That lasted for about a month until the Russian government replaced the chairman of the Central Bank, Dubinin, and put a new one in, and he said you know what, Peter, it’s over, I’m not doing that, because people are coming to me and asking me for what they did for you. They want quantitative easing, they want guarantees; we’re not doing it. So, that’s it. Now I’m frozen. Now all my ruble clients are coming saying why can’t I make my payments?
So, what we did was we went to the oil clients, and the oil clients basically said—we said to them you have all of these ruble obligations to the state for export taxes, so I’m going to transfer you the rubles, you give me the dollars that you would have needed to convert, and I will transfer for you these rubles to the tax authorities since we are effectively transferring government obligations, GKO rubles, between government agencies. And that’s what we did for about two months. So, we transferred the tax authorities the “GKO” rubles, because it was allowed. They had a tax account. The rubles were still transferring. And the money that we got from their exports, the dollars, we would convert from time to time into new rubles to make the payments for the Russian clients, and everything in rubles. And that was going great.
Then the tax authorities come in with their masks and guns and lay down my entire accounting department on the floor saying you transferred me rubles that we don’t have access to because the Central Bank shut down “GKO” rubles being transferred from all the banks’ accounts. And so, we got stuck again in that regard. Even though the constitution allowed it when the government has obligations to the banks, and GKO were such obligations. So, at that point the Russian banks decided to do what they called good bank/bad bank. So, they went, and they took all the bad stuff, threw it in here, into the current bank, and then created a new bank where all the new money that the clients were having from new revenues and expenses were coming in again. So, they did what they called good bank/bad bank.
I decided I don’t like this whole theory. I don’t like doing what I thought might be a dishonest things like this, this is not working out. And so, at that point I was thinking of just paying everybody back, shutting everything down. And some of the clients said look, we don’t want to stay at DialogBank through this, you have the restructuring bank, it’s solid, there’s no rubles, no payments, no GKOs in there, we want to open accounts there so we can continue without any problems. So, in the clients best interests we did. So, a lot of the clients did move over, and de facto, I guess, we too had a good bank/bad bank issue. That wasn’t the way…we didn’t set it up for it, for that thing.
And I made a decision at that point, I’m out. I’m out. This is not the way this is going to go. They’re starting to hit us up with tax police coming in, threatening to put all my executives in jail, all of this. This isn’t happening. So, what we did was we basically liquidated DialogBank by paying everybody out, shutting it down, giving the license, because the judges were foreclosing, the tax authorities were foreclosing on us.
So, in essence the tax authorities stole the bank, stole the assets of the bank, stole the buildings, stole the shares, everything. And in the meantime, before they completed the steal, we tried to get everybody out so it was only on—so if you’re going to steal it, you’re going to be the only creditor left. You’re not going to steal it and then not give the others. So, we got as much as we possibly could, which I’d say was 99% of everybody out with only obligations to the tax authorities. And their theft was basically what our equity was, and they stole quite a bit. They stole, I think, from us maybe $250 million in the end. At that time.
Daniel Satinsky: And this was ’99?
Peter Derby: ’98. And all the banks today are worth around $6 billion, so they probably stole an institution that would have been worth $6 to $10 billion in the end. That’s what they destroyed.
Daniel Satinsky: Wow.
Peter Derby: So, we shut that down. They took it over. They stole it all. And the other bank, the restructuring bank, actually Societe Generale bought. They bought the bank. They wanted the license; they wanted the mortgage lending and all of that. And the idea was that IFC would finance it, because IFC was financing our—already gave us the credit line prior to that. So, IFC came in, and Societe Generale bought it, and to this day—I think GE Capital then bought it, I think parts of it since then.
And I left. I said okay, Troika I already sold to the employees, this bank was going to run for a while, support Troika, still be there. Because of Glass-Steagall, they wanted me to own a piece of Troika. I said no because I didn’t want to, you know, I was—because DialogBank itself was starting to build its own trading desk, so I didn’t want to feel like I was conflicted, so I said no, but thank you. I was going to even be on their advisory board, and I think no, I think if I’m advising DialogBank how to grow I can’t really do this for conflict of interest. But we kept them as a strong client, I mean, the relationship as a pure client continued going forward. And so I was left, at that point, in—so I came back to Russia after the collapse in ’98 for three years to work out this liquidation aspect, and in July of 2001 is when I left and said—[washing hands gesture]—done. This is the collapse of Western advice.
Daniel Satinsky: Wow.
Peter Derby: It started with the… Little chinks in the armor was some of the behavior of Western institutions coming in. Those were not good. Little chinks in the armor. The forming of the oligarchs in July of ’95, big, big chink in the armor. No, before that, choosing Gaidar’s path of economic reform was the second chink in the armor. Creating the oligarchs in ’95 in July was the third chink in the armor. I think the whole U.S. policy collapse, and Russians no longer admiring or trusting the West or America was maybe the fourth, and then the collapse in ’98 was the fifth.
Daniel Satinsky: Yeah.
Peter Derby: And the Americans were there. I mean, David Lipton and Larry Summers, you know, the Russian Central Bank said look, I need help, here’s what I need to try to keep this afloat—these banks made all these bets on the ruble rate, I can’t hold the ruble rate because that’s Mother Nature right now, and I need either a huge line of credit to hold it, because if I can’t hold it these banks go bankrupt. And the Americans said—and the Russians thought they would not let a nuclear power go under, just like long-term capital management. But David Lipton said, you know, sorry, I got word from the U.S. we’re not helping you. And at that moment the Russians drew down the IMF 4.7 billion, I think it was. They maxed out on the IMF credit line, drew the money down, and then the next day blew the whole thing up. None of that needed to happen. None of that needed to happen.
So, from helping to create the entire capital market system from its early seed to using the scissor to chop off its head at the end.
Daniel Satinsky: Yeah. So, have you followed the development of that system since then? Obviously, this was a painful experience.
Peter Derby: Yeah, I kind of just…I just…that was it.
Daniel Satinsky: Yeah,.
Peter Derby: I mean, Andrei Kozlov continued. As I said, he was murdered, unfortunately. He was one of the guys that really demanded integrity in the system, and they killed him for it. The foreign volunteer corps, what is it, the Financial Volunteer Corps really did help a lot more things out. I think they did work there. They probably know better what that all is. Andy Spindler was head of that. So, I thought that was—that was with John Whitehead, and Paul Volcker, and Bill Donaldson. They did a lot of things. And then they went outside of Russia. They went into Mongolia, and Ukraine, and Georgia, Armenia and things like that. But they’re the ones that kept up with it.
I kind of washed my hands and said when the core isn’t right… I believe in sustainable, ethical wealth creation, and I think maximized wealth creation can only be done in an ethically sustainable way. And when I feel that that is not the case, you’re compromised. It’s like joining a club and before joining it you have to do something that you’re so embarrassed that they got you at any time in the future. I want freedom to choose every day who I want to be with and how I want to be there, and I don’t want to be compromised. And I just felt it was better to say I’m no longer happy with this and I’m going to pay you out, and you’re all going to find something else, and I’m no longer going to spend my sweat equity to do this.
And I offered, I mean, the institution, for the others to continue. I already transferred leadership to Boris Lipiainen. He was the president of it. I was just chairman. So, I was asking them. But they were under threat to go to jail. I mean, they were constantly being visited by the KGB, and the tax police, and in the courts, so two of them had to flee the country because they were worried that our liquidation wasn’t going to happen in time and all that. And I think in the end, you know, it was a mutual decision for everybody.
Daniel Satinsky: And did any of the…during this period did any of the Dialog people, the people you began with, they weren’t able to help with the government? They weren’t able to lobby on your behalf?
Peter Derby: No. They were doing their own thing. At that point they wanted us to fund so many of their projects, and they were not getting credit. The credit committee was saying no, this isn’t good enough, that’s not good enough, we’re not going to do it. Let’s just say they didn’t think DialogBank was their pocket bank. It wasn’t. It never was. I mean, for clearing and banking services yes, but for financing it wasn’t simply you’re my bank, give me the money. You needed to go, and some people got it, some people didn’t, so there was more of an arm’s length relationship with them at that point, and so they just wanted to make sure their equity, they were going to get, through the bankruptcy liquidation they were going to get their piece and that was it.
And they actually already started to sell down their piece even before this. When Troika was sold they were like okay, we’re going to sell down some of our piece, too. And they did it. We bought it back in a Treasury stock purchase for employees, created the employee stock option plan that way. So, they were kind of arm’s length. I think they were willing to go to court and help us a bit, but they weren’t…there was not much help, because I actually helped the tax police to be formed, right?
So, the tax police was formed with two KGB generals. I met with those two people in their first weeks on the job back in ’91–1990 into ’91 with Yaroshenko. And I knew them. And I went to them. And they tried to go to the Moscow head of the tax police. And in the end one of our clients had the daughter of the head of the tax police working there. One of our American joint venture—it was a U.S. joint venture. Had the daughter of the tax police head in Moscow worked there. And our president, in the meeting to say look, we’re having a difficult time, we’re trying to work this through, but the tax authority is constantly coming with masked men and butchering, and, you know, I mean, our…telling all our women to lay down on the floor, and he was disgusted with them.
So, the daughter told her dad that DialogBank’s president thinks you guys are beasts and are doing things incorrectly, so there was zero chance to change his view about DialogBank. I had the federal head of the tax police tell him to stop because it’s not right. I had the head of the parliament committee say stop, this isn’t right. And him telling them to take a hike, it’s personal. They accused my men of coming in. And the fact was they did come in and laid our people out. And they were doing it on behalf of two Russian clients who probably did pay them to do it, because they wanted their payments right away. They didn’t want us to wait for this thing with the oil companies to figure it out and all of that.
And so he got personally offended, and we couldn’t back him off, and at that point there was no backing him off, and so they were confiscating and stealing our bank. It was clear to me that’s what’s happening. It was clear to my guys that’s what’s happening. And they had a choice to fight it and possibly end up in jail or flee the country while I liquidated it, and that’s what we did.
Daniel Satinsky: Wow. It’s an amazing story. Have you told this story in this way—
Peter Derby: No, never. Never.
Daniel Satinsky: Okay. Well, thank you for being willing to tell me the story because it is an amazing story, and there’s so much…it’s so rich a story, if you will. I’m going to have to figure out how to use it and get your permission about this because—
Peter Derby: The positive side is, interpersonal relationships, sincerity, integrity, good meaning, you know, really intellectual work and building a bond with people who are going to do something is really important, right? Like the president of China today, you knew he was going to be president ten years ago, right? During the Obama administration Obama said look, Biden, go be friends with this guy; in a few years he’s going to be president of China. So, knowing the people that are kind of coming up and somehow meeting them in the right terms, the right just happenstance, and it just works out, and there’s trust, and their desire, your desire, it all works. Those personal relationships matter.
DialogBank got shut down because of a bad personal relationship. We had a president who went into a meeting—I wasn’t there—he expressed his frustration and his shock and demise of the behavior of the local tax police, being shaken down like the Mafia by these people with no understanding of what’s really going on, no intellectual nothing, and that, heard by a daughter who tells her father, whose father says I’m taking revenge, and then no one can stop him. Literally nobody could stop him unless it was Putin at the time coming in, which, you know, it just wasn’t going to happen, right? His commitment was a commitment.
And so, everything that happened wonderfully happened because of personal relationships and the collapse happened because of a bad—not with me. With me the wonderful stuff happened because of my wonderful relationships. The bad one was somebody else’s within my team, the president, a trusted—he just came back from getting his MBA. I sent him to MIT to get his MBA because Citibank’s chairman also, John Reed, was an MIT grad that was head of Citibank. And he was an IT guy. He ran all of our IT. Former smart young KGB guy, as I mentioned, a brilliant, brilliant kid.
And he came back with his MBA in June, the collapse in August, he now takes over after he ran it for a few months, went and got his MBA, came back, now is running it for a few months while I left, and all of a sudden this all happens. And during this three years following the Russian government default by freezing the GKOs I was there, he was going to visit clients as the president to tell them how we were going to try to come out of this. Unfortunately, he expressed his true view, but sad view, and the person in the room, not knowing that, created the complete collapse and theft of the bank. So, a personal relationship killed it as a personal relationship started it.
Daniel Satinsky: Yeah. Wow.
Peter Derby: No different than Bear Stearns going down, by the way. That was a personal relationship that made sure Bear Stearns wasn’t coming out, either.
A personal relationship that somebody was offended at previous behaviors that therefore wasn’t willing to help them.
Daniel Satinsky: Wasn’t willing, yeah.
Peter Derby: And waited for them to collapse, and then a few hours after they collapsed, they helped all the other banks. So, why didn’t they do it a few hours earlier? Because it was personal.
Daniel Satinsky: Because it was personal, yeah.
Peter Derby: So, it happens in the West, too. This is not a Soviet—I’m not trying to say Soviets are bad. I’m just trying to say the importance, if you want to have ingredients of reform, personal, ingredients of collapse, sometimes personal, too. Yes, maybe you over leverage yourself, pure business move, you bet the market the wrong way, it’s over. I agree that’s part of it. But sometimes it’s personal.
And my story is that entire timeline, right? I was one of the very first ones to help. I helped really well at the core of the changes. I allowed fruit to flourish. Like Troika on their own grew a lot. Troika’s main success was the people at Troika. They’re the ones that did it. I gave them a few avenues. If they didn’t take them nothing would have happened. So, I’m not taking credit for Troika’s real flourishing because it was done by them. I’m taking the credit for their guidance and giving them the resources to take to go there, but they went there. I didn’t do the work for them, they did it.
And then as the overarching mood towards America changed, things changed, the collapse, with America pulling the rug out from under it—for good reason, I mean, too—they were like look, we’re just not going to keep supporting this behavior. That collapse created a lot of the other things. And then how the personal relationships just collapsed here, too.
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