Raiffeisen Beats Capital Estimates, Closes In on EBA Need
Raiffeisen Bank International AG (RBI) lifted capital ratios by more than analysts expected in the final quarter of last year, raising hopes it will be able to fill a gap determined by European regulators.
Raiffeisen, eastern Europe’s third-biggest bank, had core Tier 1 capital of 9.3 percent at the end of 2011, up from 7.9 percent at the end of September, it said in a statement yesterday. The ratio was boosted by net income that beat estimates, and by measures Raiffeisen took specifically to satisfy requirements by the European Banking Authority.
“The good news isn’t the earnings statement, it’s the capital,” said Daniele Brupbacher, an analyst at UBS AG. “The EBA-related measures had a more-positive-than-expected impact.” Brupbacher, who downgraded Raiffeisen to “sell” last week, lifted his target price by 9 percent today “to reflect a lower dilution risk.”
Raiffeisen was little changed in Vienna trading, where it was down 0.1 percent at 25.295 euros at the 5.30 p.m. close. It outperformed most of the 43 members of the Bloomberg Europe Banks and Financial Services Index, which was 0.7 percent lower. Raiffeisen has gained 26 percent this year.
‘Hibernation’ Possible
The lender, which operates in Austria and in 15 former communist countries, is seeking to beef up capital on EBA’s orders and as Hungarian losses depleted reserves. About a third of its reserves consist of state aid and capital forms that will be phased out. Raiffeisen discussed a possible rights offering and may seek as much as 1 billion euros ($1.3 billion), people with knowledge of the talks said this month. The lender hasn’t yet decided whether to proceed with the share sale, the people said.
“We think equity investors will continue to focus on the core tier 1 ratio excluding participation capital,” Brupbacher added, referring to the non-voting capital variety in which the state provided aid and which was also sold to investors. While Raiffeisen will try to sell shares if markets improve, it can also afford to “go into ‘hibernation’ mode in order to avoid a large, highly dilutive capital increase,” he said.
Stripping off the participation capital and applying new rules by the Basel Committee on Banking Supervision, the capital ratio stood at 5.7 percent, Brupbacher said.
Capital Gap
The bank and its parent, Raiffeisen Zentralbank Oesterreich AG (RZBOPA), are working to fill a capital gap of 2.1 billion euros determined by the EBA. They have completed measures equivalent to raising 1.4 billion euros, the banks said Jan. 25. An acquisition in Poland due to be completed by the end of March will lower the capital ratio by 40 basis points, Raiffeisen has said.
In an additional measure to improve its capital ratios, Raiffeisen also started an offer to buy back 500 million euros of hybrid bonds today. The buyback could create net income of about 150 million euros and lift capital ratios by 16 basis points, the bank said.
Net income declined 11 percent to 968 million euros last year, Vienna-based Raiffeisen said in a statement yesterday, more than a month ahead of when it planned to announce results. That beat the average estimate of 822.3 million euros by 14 analysts in a Bloomberg survey. The company still plans to report detailed full-year results on March 29.
Ukraine Loss
The bank took a 183 million-euro writedown on Bank Aval, the Ukrainian lender it acquired in 2005 for $1 billion, after accounting for the country’s deteriorating economic outlook. It had flagged the possibility of that writedown when it reported third-quarter results Nov. 24.
The Ukraine loss was offset by 206 million euros of valuation gains on Raiffeisen’s own debt, mostly booked in the fourth quarter when bonds of European banks plummeted. Lenders can choose to record price changes of their own bonds using an accounting rule known as fair value option. Falling bond values boost profits while climbing values diminish earnings.
Raiffeisen booked an additional 231 million euros in special gains last year, most of it in the fourth quarter, on derivatives. Provision for loan losses declined 10 percent even as the amount set aside to cover souring debt climbed in Hungary, it said.
To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
Rate this Page