MOSCOW, Sept 16 (Reuters) - Shares in Russia's No.2 lender, state controlled VTB spiked 14 percent in London trade on Wednesday, narrowing a valuation gap with the country's top bank, state controlled Sberbank.
Analysts said that VTB had been undervalued versus Sberbank for too long and that VTB had a greater potential for growth.
VTB is now chasing Sberbank. It lagged for a long time and clients were not holding much. Now investors are jumping into the share en masse,' Troika Dialog head of trading Timur Nasardinov said.
VTB shares were up 13 percent in Moscow to 5.57 kopecks at 1242 GMT, exceeding the 4.82 kopecks per share paid by the state in a rights issue which closed last week. The benchmark RTS index was up 2.08 percent and Sberbank rose 1.35 percent.
'Sberbank is still on top of the world but when it gets too expensive people have to find alternatives,' Metropol brokerage trader Nikolai Kiryushkin said.
At the end of August, a major investor easily sold off $140 million worth of Sberbank shares as Frankfurt listed Global Depositary Receipts, offering proof of investor appetite for the successor to the Soviet state savings bank.
That interest launched a rally that lifted the shares by 31 percent since the Aug 31 placement and helped cement Sberbank's new role as Russia's top blue chip, which analysts and investors see as a proxy for the Russian market.
Since then, it has outperformed the RTS by 16.5 percent.
As of Tuesday, it had outperformed VTB by about 13 percent but VTB's gain today closed the gap to just 2 percent.
'We think that Sberbank is overbought and see little upside for its shares at current valuations,' Unicredit said in a note to clients on Wednesday.
'However, we believe VTB -- which trades at a 37 percent discount to its pre-crisis level on expected current year price to book value -- should outperform Sberbank over the short run, regardless of the market direction.'
Based on Tuesday data, Unicredit put Sberbank at a price-to-book ratio of 1.9 times and VTB at 1.2 times.
VTB and Sberbank had been a popular spread trade on Russia's stock market, with investors building up long positions in the No.1 state savings bank, whose business is steady by a vast deposit base, and selling short riskier VTB.
Traders said that the pair could easily reverse. VTB, more heavily leveraged and relatively exposed to commodity heavy Russian industry, would likely outperform the market in a sustained economic recovery.
Deputy Prime Minister Igor Shuvalov told parliament on Wednesday that the country's economy had past the worst of its steep downturn.
Finance Minister Alexei Kudrin told parliament also on Wednesday that Russia could expect sequential growth of 1.5 percent in the third quarter and 2.4 percent in the fourth.
The banks have outperformed as evidence has mounted that Russia is bouncing out of its first recession in a decade.
'People were looking for a second wave of crisis and it isn't coming,' Moscow-based trader said.
(Additional reporting by Melissa Akin, editing by Dmitry Sergeyev and Karen Foster) Keywords: MARKETS RUSSIA/VTB (melissa.akin@reuters.com; +7 495 775 1242) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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