State-Aided Raiffeisen Raises Dividend While Profit Drops

Raiffeisen Bank International AG announced a dividend increase even as its profit declined, drawing criticism from analysts who say the Austrian bank isn’t weaning itself off dependence on state-provided capital.

Eastern Europe’s second-biggest lender is proposing to pay out 1.17 euros a share for 2012, 11 percent more than a year earlier, according to a statement from the Vienna-based bank today. Raiffeisen posted lower full-year profit and swung to a loss of 117 million euros ($157 million) in the fourth quarter, compared with net income of 222 million euros a year earlier, on bad-debt charges and a writedown at its Ukrainian unit.

About a quarter of Raiffeisen’s capital is state aid that helped the bank avoid a cash call in 2009, when the financial crisis drove its stock to a record low. Chief Executive Officer Herbert Stepic’s move to increase the share of earnings paid out to its shareholders, which are mostly regional cooperative banks, is at odds with regulatory calls for Austrian banks to use their profit to bolster capital.

“This is almost a 30 percent payout ratio, and such a high dividend contradicts the bank’s objective to strengthen capital by retained earnings,” Eleni Papoula, an analyst at Berenberg Bank in London who recommends selling the shares, said by phone. “It contradicts the guidance by the local regulator to the banks to strengthen their capital.”

Quarterly Loss

Austria’s central bank declined to comment. It has repeatedly urged the nation’s biggest lenders to raise more capital to repay government funding, satisfy new regulations and catch up with better-capitalized rivals in eastern Europe.

Raiffeisen’s quarterly loss was its first since its initial public offering in 2005. Full-year net income declined 25 percent to 725 million euros.

The shares fell 0.3 percent to 30.69 euros at 12:20 p.m. in Vienna. The stock is down 2.5 percent this year, underperforming the 46-member Stoxx 600 Banks index, which is up about 8 percent.

Raiffeisen’s dividend increase was partly to pass on 272 million euros in one-time gains the bank posted in the first quarter from buying back some of its own debt and selling securities, Raiffeisen spokeswoman Ingrid Krenn-Ditz said in an e-mailed response to questions from Bloomberg News.

“We believe that the 2012 result was respectable,” she said. Krenn-Ditz also said Raiffeisen feels “comfortably capitalized” with its core Tier 1 ratio, a measure of financial strength, at 10.7 percent at the end of last year.

Capital Ratios

Berenberg’s Papoula estimates Raiffeisen’s core Tier 1 ratio is only 7.7 percent if 1.75 billion euros of state-provided capital and 750 million euros in a similar form of capital being phased out by regulators are excluded. That trails the average of more than 10 percent among Raiffeisen’s European peers, she said.

Under international Basel III bank regulations that began taking effect this year, the government capital is valid for measuring core Tier 1 ratios until 2017.

Raiffeisen’s total dividend payout will be 229 million euros. The biggest share of that is paid to Raiffeisen Zentralbank Oesterreich AG, which owns 78.5 percent of the stock and is in turn owned by Austrian regional cooperative banks.

The bank surprised investors a year ago when it left its dividend unchanged, even as it was filling a 2.1 billion-euro capital hole found by the European Banking Authority. RZB and its holders, led by Raiffeisenlandesbank Niederoesterreich-Wien AG and Raiffeisenlandesbank Oberoesterreich AG, also rejected a sale of new Raiffeisen shares to address the shortfall.

Raiffeisen joined other European lenders reporting losses on writedowns and provisions for possible future charges during the most recent quarter, including Erste Group Bank AG, Deutsche Bank AG, and UBS AG.

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