Net income rose 17 percent to 125 million euros ($166 million), the Vienna-based bank said in a statement today, less than the 138 million-euro average estimate in a company survey of 18 analysts. Net interest income, its main revenue source, dropped 9.4 percent to 1.19 billion euros, missing all estimates in the company poll. Results were skewed by one-time items in both the quarter to June 30 and the same period a year earlier.
“This is a satisfactory result considering an operating environment that has become increasingly challenging for banks which do exactly what politicians and regulators would like them to do, i.e. taking deposits from and lending to real customers,” Chief Executive Officer Andreas Treichl said in the statement.
Erste is facing declining revenue as central and eastern European economies, where the bank trails only UniCredit SpA (UCG) and Raiffeisen Bank International AG (RBI), remain mired in recession or slow growth. Treichl has pledged to expand earnings by turning around his Romanian unit this year.
The bank cut its earnings outlook when it announced a 661 million-euro sale of new shares concluded this month. It now expects pre-provision operating profit to decline 5 percent this year as the slide in revenue outpaces cost cuts and a reduction in bad-debt charges.
Erste reported a second-quarter profit in Romania, helped by a 128 million-euro tax credit and ending a stretch of eight straight quarterly losses as bad debt in the Black Sea nation of 20 million ballooned to 30 percent of its loan book. Erste paid six times book value when it agreed to buy Banca Comerciala Romana, the nation’s biggest lender, for 3.75 billion euros in 2005 and has made several writedowns since.
In Hungary, Erste’s losses widened in the quarter, mostly on additional tax charges. Prime Minister Viktor Orban’s government is seeking ways to cut the stock of mortgages denominated in Swiss francs, which may cause further losses at the country’s banks. Erste Bank Hungary is the second-biggest lender in the neighboring country, trailing OTP Bank Nyrt.
Erste shares have dropped 4.4 percent this year in Vienna to close at 22.85 euros yesterday, underperforming the 8.4 percent rise in the 44-member Bloomberg Europe Banks and Financial Services Index. The stock trades at 0.67 times book value, less than the 0.83 average for the Bloomberg Europe index’s members.
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