The Bank will seek to capitalise on the growth potential of the Russian markets in these segments by exploiting its main advantages: knowledge of and proximity to corporate customers and the Bank’s size. The Bank’s investment banking strategy focuses on maintaining a top three market position in this product area as well as achieving outright market leadership in the areas where the Bank enjoys the strongest competitive advantage, including mergers and acquisitions, debt capital markets, private placements, leveraged buyouts and second-tier equities. To make its earnings base more stable, the Bank has increased its emphasis on fee and commission-generating products and seeks to reduce the proportion of proprietary trading as a percentage of income. The Bank plans to continue to expand its product offerings in corporate finance as well as in the debt and equity capital markets, and it expects that the Bank’s corporate banking relationships will help the penetration of its investment banking and financial markets products and services.

Investment banking activities include corporate finance and debt and equity capital markets, while financial markets include fixed income sales and trading and equity brokerage, as well as foreign exchange, money markets, banknotes, precious metals, derivatives and proprietary securities trading.

Corporate Finance and Equity Capital Markets

The Bank’s corporate finance business was established in 2002. In July 2003, the Bank was named advisor to the Russian military aircraft manufacturer, Irkut, for the company’s secondary public share offering. The Irkut deal, in which the Bank also acted as a joint bookrunner and joint global coordinator, was successfully completed in March 2004 and resulted in an offer size of USD127 million, making it the
largest ever domestically-listed public offering by a Russian company. In March 2006, the Bank acted as a joint global coordinator and bookrunner for IPO of RAZGULAY Group OJSC, one of the largest vertically integrated agro-industrial companies and the first public offering of an agro-industrial company in the Russian Federation. In 2006, the Bank was named the Best Merger and Acquisition Company and the Best
Company-Underwriter by the National Association of Stock Markets Participants.

Debt Capital Markets

The Bank is active on both the local and international debt capital markets. In January 2004, MDM participated in the Gazprom Eurobonds issue, which was recognised by the Euromoney magazine as the most successful public deal in Eastern Europe. MDM is also the leading arranger of credit linked notes for Russian corporates. In 2006, the Bank successfully placed 5 issues of such notes in the amount of USD550 million. In 2006, the Bank participated in 30 Ruble bond issues with the total size of issues of RUR102 billion and placed bonds in the amount of RUR22 billion.

Fixed Income Sales and Trading

The Bank is one of the leading fixed income players on the market. The Bank’s fixed income sales and trading services include distribution of primary placements and secondary market trading of a wide range of instruments. The Bank distributes fixed income products through its client network, which, as at 30 September 2006, included over 900 accounts of clients from Europe, Asia, the United States and Russia,
allowing the Bank to place both Rouble-denominated and foreign currency denominated debt securities. In 2003, the Bank established an international fixed income sales desk, reflecting growth in international demand for Russian instruments. The Bank also provides leveraged based products, market-making and repurchasing (REPO) services with both international and domestic counterparties, allowing the Bank to
earn spread and trading income, while providing an additional source of liquidity. The Bank provides services in fixed income and credit research, which provides clients with full range of products, including daily reports and special financial analysis of all industries.

Equity Brokerage

In 2006, the Bank reorganised its equities business. With the arrival of the new management team and the significant boost in sales, trading and research groups, the Bank has launched a full service institutional equity product oriented towards the international and Russian investors. The research product coverage spans across all major sectors and includes both blue-chips and small-cap stocks. The Bank
anticipates the momentum of research coverage and expansion of the Bank’s client base in Russia and abroad to accelerate in 2007.

Foreign Exchange

The Bank is a market maker in hard currencies trading, with a market share of approximately 40 per cent. and with a daily average turnover of approximately US.$500 million. In U.S. Dollar/Rouble trading, the Bank’s share is 5 per cent. with a daily average turnover of USD1.5 billion. The Bank’s clients include a number of Russian banks and a broad base of corporate and private customers.

Money Markets

The Bank holds a leading position on the local interbank deposit market. This is primarily an intra-CIS business, although the Bank’s interbank credit facilities are from its international counterparties. During market turbulence in July 2004, the Bank did not incur any losses on the interbank market due to prudent risk policy and was remunerated with the sharp growth of the client base. In the nine months ended 30 September 2006, the Bank’s market share reached the levels of 5 per cent. in U.S. Dollars and 5 per cent. in Roubles.

Banknotes

In the past six years, the Bank has maintained its leading position on the banknote market having controlled approximately 35 per cent. of the local market. U.S. Dollars continue to represent the majority of this business, though demand for Euros in Russia constantly grows.

Precious Metals

Net gains from precious metals trading contributed RUR11 million in the six months ended 30 June 2006. Trading activity includes both direct purchases from metals producers and open market trading. These transactions are executed for both clients and on the Bank’s own account.

Derivatives Trading

The Bank established a Derivatives Division in 2002 to address growing client demand for currency, interest rate and commodity derivatives, and in the six months ended 30 June 2006, maintained one of the leading positions in the Russian derivatives market. As part of its policy, the Bank develops hedging strategies for its clients. In 2004, the Bank became the first Russian bank to hedge future prices on fuel for
aircraft.

Proprietary Securities Trading

Proprietary securities trading is an important source of income to the Bank, and includes appreciation of the Bank’s portfolio and trading income from actively managed positions. In the nine months ended 30 September 2006, the MDM Bank Group received profit in the amount of RUR200 million from proprietary securities trading.

Asset management

The Bank’s asset management business is being gradually separated from the investment banking and financial markets division, and constituted as a separate business division. The MDM Bank Group offers individual account management services onshore through the Bank. Collective onshore investments are offered by MDM Asset Management OOO, which is licensed to manage pension accounts.

Contacts