UPDATE 1-Russia's VTB to spend $500 mln on investment banking

(Adds details, analyst quote)

By Dmitry Sergeyev

MOSCOW, March 25 (Reuters) - VTB (VTBR.MM: Quote, Profile, Research) (VTBRq.L: Quote, Profile, Research), Russia's second-largest bank, will invest $500 million and hire 400 people in the next two years to expand its investment banking business, the company's chairman said on Tuesday.

Andrei Kostin told reporters the state-controlled bank also forecast growth in net profit this year, despite the planned expenditure, adding the cost was already incorporated into the company's 2008 to 2009 growth plan.

"We can manage the investment business cost and forecast no deviation from our 2008 targets," said Kostin.

"We plan to spend about $500 million during two years and expect the investment banking to become profitable in the second year in line with the optimistic scenario and in the third year in line with the pessimistic scenario," he added.

Vedomosti business daily reported VTB would hire half the analytical team of Deutsche Bank's Russian unit, often rated as one of the top three teams in Russia.

Kostin earlier said VTB targeted upto $40 billion worth of investment banking deals, including initial public offerings and bond issues.

Analysts expressed doubts that the strategy will be effective. "The news is rather negative. The amount is significant while the risks associated with the possibility of this strategy failing are quite big," said Leonid Slipchenko from Uralsib.