ALEX. BROWN GOES TO RUSSIA Investment firm plans bond market in St. Petersburg


Alex. Brown & Sons Inc., one of America's oldest investment bankers, is now one of Russia's newest.

The Baltimore-based company was host to a group of officials this week from St. Petersburg, Russia, who have enlisted Alex. Brown as their city's financial adviser. The goal is to set up a market for municipal bonds, old hat for a company that helped finance the Baltimore & Ohio Railroad more than 100 years ago.

The challenge is to do it in a country whose infrastructure is either crumbling or non-existent, whose inflation rate exceeds 365 percent a year and whose citizens still would rather stick their money in a mattress than a bank.

"We view it as a long-term commitment, and a long-term investment that may not yield short-term returns," said Kevin G. Quinn, the managing principal for Alex. Brown's municipal finance department.

St. Petersburg signed the agreement with Alex. Brown a year ago. Since then, Alex. Brown executives, including Mr. Quinn, have visited the city, formerly known as Leningrad, and met with local officials.

All this week, a delegation of four people from St. Petersburg visited Baltimore, studying the basics of municipal finance, and touring the hot spots: the Northeast Maryland Waste Disposal Authority, the University of Maryland Hospital, the Washington Suburban Sanitary Commission and other popular attractions.

Alexander N. Belyaev, chairman of the St. Petersburg City Council, said one thing his city does not lack is a needy infrastructure, including roads and bridges, single-family homes and apartment houses, water purification systems, hospitals and parking garages.

"The most important thing we're learning from Alex. Brown is how to create the mechanisms to build and finance these projects," said Janetta A. Krolli, deputy of St. Petersburg's finance department.

But the challenge is enormous, and history is not on their side. Russians with long memories recall what happened to the value of the Czarist bonds when the Bolsheviks gained power in 1917. In the 1930s, the Stalin government launched an unusual program that required Russian citizens to buy 20-year bonds that yielded no interest.

And during World War II, 20-year war bonds were issued, but Nikita S. Khrushchev delayed payment on them for 20 more years, and his successor as Soviet leader,Leonid I. Brezhnev, later agreed to pay back the principal, but none of the interest, leaving the bonds essentially worthless.

With the recent upheavals in the former Soviet Union, one of the biggest problems facing the finance officials is finding citizens who will trust the government to honor the bonds, said Vasily V. Shigaev, vice chairman of the St. Petersburg stock exchange.

Beyond that, Alex. Brown and several other firms are needed to help the city estimate the costs of the bond-financed projects, and the amount of revenues they will be expected to generate.

Both of those challenges are compounded by Russia's inflation rate of between 1 percent and 2 percent -- a day -- according to Mr. Shigaev and Mr. Belyaev.

The key, Mr. Shigaev believes, is to start small: a parking garage, some single-family housing, or a small farmer's market, like Cross Street Market in Federal Hill.

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