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Raiffeisen to Repay $2.4 Billion Five Years After Bailout

Raiffeisen Bank International AG (RBI), Austria’s third-biggest bank, has convinced regulators it has enough buffers to cover its Russian risk, enabling it to pay off 1.75 billion euros ($2.4 billion) in pricey bailout aid.

Raiffeisen, one of the biggest foreign banks in Russia and Ukraine, will reimburse the aid Friday after securing approval from the Austrian Financial Market Authority today, Chief Executive Officer Karl Sevelda told shareholders at their annual meeting in Vienna. He plans to repay a 750 million-euro slice of capital held by private investors that was linked to the aid as soon as possible, he said.

“We would have liked to repay earlier,” Sevelda told his investors, pointing out the 8.5 percent interest Raiffeisen had to pay on the debt. “But FMA and the central bank wanted to add more buffers because of the developments in Ukraine and it took a while until we could agree on the repayment.”

Raiffeisen has warned that Ukraine’s standoff with Russia may push its Ukrainian business into a loss this year. The crisis has already derailed the planned sale of Raiffeisen’s Ukrainian unit, which posted its first loss in more than a year in the first quarter, and put in doubt the prospects of its most profitable business, Russia’s ZAO Raiffeisenbank.

Sevelda told shareholders that the Ukraine crisis was “damaging economically,” while not presenting an “existential risk” for Raiffeisen, and that investors would resume buying Raiffeisen’s stock once the crisis abates.

‘Remains Attractive’

“Despite the current developments, Russia remains an attractive market in the medium and long term,” he said. “Once the situation in Ukraine and Russia calms down, I’m convinced the share will recover.”

Raiffeisen rose 1.0 percent to 24.66 euros by 5:10 p.m. in Vienna, outperforming the Bloomberg Europe Banks and Financial Services Index, which was up 0.3 percent. The shares have lost 22 percent since this year’s 31.27-euro high reached Jan. 23. Raiffeisen sold 2.8 billion euros of new shares in January to help fund the state aid repayment.

In the first five years after its bailout, the aid and the linked private capital cost Raiffeisen 8 percent interest, or 200 million euros a year. The rate rose to 8.5 percent this year and was set to reach more than 10 percent in 2017. The securities through which the aid was given had equity-like loss-bearing features, making them riskier than bonds.

Raiffeisen follows Austrian peers Erste Group Bank AG (EBS) and Bawag PSK Bank AG in paying aid they received from the Austrian government in 2009. Erste paid back 1.22 billion last year, while Bawag completed its 550 million-euro repayment in March. Both raised new capital to bolster their reserves ahead of the repayment.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Cindy Roberts, Jon Menon

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