Raiffeisen Bank International AG, Austria’s third-biggest lender, plans to exhaust other means to bolster its capital ratio before considering a sale of new shares, Chief Executive Officer Karl Sevelda said.
Raiffeisen will scale down its business in Slovenia, Hungary and Ukraine, make better use of regulatory allowances to lower capital requirements, and increase the lender’s earnings, before repaying 1.75 billion euros ($2.4 billion) in state aid in the form of participation capital, Sevelda told journalists.
“We have a core capital ratio of more than 10 percent,” Sevelda said Nov. 15 in Bucharest in comments embargoed until today. “It’s true that part of that is the participation capital, but we have that participation capital until 2017. That’s another four years. I don’t see any reason for stress toward a capital increase.”
Raising capital is the biggest challenge facing Sevelda, who took over in June. While investors and regulators push for a stock sale, he has to overcome opposition by RZB, the bank’s parent company that is ultimately owned by 494 local cooperatives. RZB, which controls 79 percent of Raiffeisen, opposed a rights offering in March last year, saying the stock price was too low. The share is at about the same level now.
Selling new shares remains an option, the CEO said, without elaborating on timing or size of a potential transaction.
Raiffeisen, the second-biggest bank in eastern Europe after UniCredit SpA, is cutting as much as 450 million euros in costs to increase earnings, it said Sept. 24. It is introducing internal rating systems in more of the 16 countries where it’s operating to lower the risk weights used in calculating regulatory capital requirements. That could have an effect equal to raising 400 million euros in cash, the CEO said.
Sevelda’s approach mirrors Raiffeisen’s strategy when it and RZB had to fill a 2.1 billion-euro capital shortfall determined by the European Banking Authority in 2011. Then CEO Herbert Stepic, who resigned this year over private offshore investments, and Walter Rothensteiner, RZB CEO and Raiffeisen’s chairman, filled the gap without raising fresh money.
Instead they cut assets, optimized holdings for the minimal capital requirement, and swapped hybrid capital into forms accepted by regulators. Dividends, cut by many banks to lift the share of retained earnings, were raised as a share of net income at Raiffeisen and RZB.
Stripping off the state aid and 750 million euros of related hybrid capital, Raiffeisen needs 2 billion euros of new capital, equivalent to 40 percent of the existing shares at current prices, to bring its core Tier 1 ratio to 10 percent, JPMorgan Chase & Co. said in September.
Raiffeisen has dropped 14 percent this year in Vienna trading, cutting the bank’s market value to 5.3 billion euros. The Bloomberg Europe Banks and Financial Services index rose 16 percent during the same period.
Sevelda’s chief risk officer, Johann Strobl, and fellow bank executives from Austria, Italy, Latvia, the Netherlands, Portugal, Slovenia and Slovakia will be briefed on Nov. 25 about Europe’s next bank exam, the European Central Bank’s balance sheet assessment, Sevelda said. He declined to comment on his expectations for the test.
A precursor to the ECB’s euro-area wide test in Slovenia already contributed to Raiffeisen raising bad-debt charges by 200 million euros in September. Raiffeisen is due to report third-quarter results Nov. 27.
Raiffeisen is considering offers it received for its Ukrainian unit Raiffeisen Bank Aval and may sell the business, which will be profitable this year, Sevelda said. Aval isn’t as core to Raiffeisen’s geographic scope as its operations in countries including Hungary and Slovenia, where the bank is cutting its business without considering a complete exit, he said.
“We want to stay in Hungary, you shouldn’t forget we went there in 1987 as the first eastern European market,” he said. “There’s a lot of heart and soul in that. Hungary as a neighboring country certainly has a higher priority.”