Raiffeisen Bank International AG (RBI), the Austrian bank making most of its profit in the former Soviet Union, said it expects the effect of the turmoil in Ukraine to be short-lived and won’t retreat from Russia.
Raiffeisen, the second-biggest bank in eastern Europe after UniCredit SpA (UCG), said today Russia’s annexation of Crimea could help push its Ukrainian unit into a loss this year and extend an economic downturn in Russia. In the long run, Russia will rebound and Ukraine may become a more lucrative market, Chief Executive Officer Karl Sevelda said.
“The growth prospects in Russia have clouded a bit,” Sevelda told journalists in Vienna. “But, we remain convinced that Russia remains an attractive banking market in the medium and long term if the political crisis is overcome.”
Sevelda oversaw Raiffeisen’s 2.78 billion-euro ($3.8 billion) fundraising in January, the biggest euro-area bank share sale this year, to repay state aid and bolster reserves ahead of the European Central Bank’s asset quality review. The standoff with Russia over Ukraine has since derailed the sale of its Ukrainian unit and put in doubt the prospects of its most profitable business, Russia’s ZAO Raiffeisenbank.
Raiffeisen shares turned negative after rising in early trade in Vienna, trading down 0.9 percent at 22.90 euros by 2:49 p.m., bringing its decline this year to 6.7 percent. The 43-company Bloomberg Europe Banks and Financial Services Index was little changed today.
Raiffeisen’s net income swung to a 146 million-euro profit in the three months to December, beating analysts’ estimates, after a loss caused by writedowns a year earlier, the bank said today. The biggest share, or 87 million euros, came from Russia, where it trails UniCredit and Societe Generale SA. (GLE)
“The operating results are better than expected on every line in the income statement,” Thomas Neuhold, an analyst at Kepler Capital Markets in Vienna, said in an interview. “The big question is the outlook on the Russia situation. If there won’t be much stricter European Union sanctions against Russia, this is a good moment to buy Raiffeisen.”
The U.S. and the European Union have imposed sanctions on Russian and Ukrainian officials as well associates of Putin, leaving open the threat of broader sanctions targeting the Russian economy, including its energy and financial sectors.
Sevelda said none of the Russian officials sanctioned so far is banking with Raiffeisen. He doesn’t expect sanctions to broaden after a meeting of U.S. President Barack Obama and Group of Seven Leaders in The Hague this week.
“Neither side is interested in a sanctions race between Russia and the west,” he said. “Such a development would only result in losers. Reading the G7 resolution of the Hague, I see bridge-building rather than a declaration of conflict.”
Raiffeisen halted the sale of its Ukrainian unit Raiffeisen Bank Aval on March 3 as the conflict in the country escalated. While the unit more than tripled profit to 101 million euros last year, it may swing into a loss this year because of rising bad debt and the economic fallout of the turmoil, Sevelda said.
Even so, he may shelve the sale and keep the unit if Ukraine’s government adopts the right policies, Sevelda said.
“There’s a chance that Ukraine goes in the right direction, a Ukraine with less corruption and more law and order, with more market economy and less cleptocracy,” he said. “In such a Ukraine, Raiffeisen Bank Aval would be in an excellent position.”
UniCredit said March 11 that it was in talks with a single bidder for its Ukrainian business. BNP Paribas SA (BNP) said it will cut 1,600 jobs in Ukraine and expects its loan book to shrink.
The Crimea crisis also derailed Raiffeisen’s plan to repay 1.75 billion euros of state aid by mid-March, as the bank didn’t receive regulatory approval for the plan. Sevelda said he hoped to convince regulators that its capital level is ample. The bank had Basel III-compliant core equity Tier 1 capital equivalent to 10.1 percent of risk-weighted assets following its share sale.
The bank proposed a dividend of 1.02 euros a share, down from 1.17 euros a year earlier and compared with a Bloomberg dividend forecast of 75 cents.
Raiffeisen reiterated its forecast to keep loan loss provisions this year similar to the 1.15 billion euros set aside in 2013, adding that the ECB review as well as the Ukraine impact isn’t reflected in this outlook.
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