Raiffeisen Beats Estimates as CEO Uncertainty Persists

Raiffeisen Bank International AG kept investors waiting in vain for an answer to the question who will lead eastern Europe’s second-biggest bank as it posted first-quarter profit that beat analysts’ estimates.

Net income fell to 157 million euros ($203 million) from 541 million euros a year earlier, when earnings were boosted by one-time gains from hybrid bond buybacks, the Vienna-based bank said in a statement today. That beat the 146 million-euro estimate of four analysts surveyed by Bloomberg.

Chief Executive Officer Herbert Stepic, who offered to resign last week over a probe into offshore accounts, presented the results in a call with investors, who were asked to refrain from questions about his resignation or succession. The bank yesterday put off a decision about the post until June 7.

“I don’t think these results are anything to get excited about -- I was hoping to get an update on the CEO succession,” Eleni Papoula, an analyst at Berenberg Bank who has a sell rating on Raiffeisen, said by telephone. “These results should have been about the announcement of a credible succession plan. I’m not seeing that.”

The leadership uncertainty at Raiffeisen, the Austrian lender trailing only UniCredit SpA in eastern Europe, is aggravated by strategic decisions management has to face. That includes addressing the bank’s capital base amid strains at its main shareholders, a group of cooperative banks which own 79 percent via Raiffeisen Zentralbank Oesterreich AG.

Raiffeisen shares rose 0.9 percent to 26.78 euros by 4:20 p.m. in Vienna, underperforming the 40-company Bloomberg Europe Banks and Financial Services Index, which advanced 2.7 percent. It’s the index’s third-worst performer this year.

Capital Weakness

Raiffeisen’s core Tier 1 ratio, a measure of a bank’s ability to absorb losses, declined to 10.6 percent of risk-weighted assets in the first quarter from 10.7 percent at the end of last year, it said.

That includes 1.75 billion euros of state aid as well as 750 million euros of non-voting capital being phased out by regulators. Without this capital, the ratio may be only 6.8 percent, Bank of America Corp. analyst Johan Ekblom wrote in a note to clients today. Raiffeisen doesn’t report a ratio stripping out the state aid.

“Our negative call on Raiffeisen has been based on its weak capital position and expectations of consensus downgrades,” Ekblom said. “We still think Raiffeisen has a 1.5 billion-euro deficit.”

External Candidate

RZB, which itself is ultimately owned by 494 local cooperatives via eight regional banks, opposed a sale of new shares last year because it deemed Raiffeisen’s share price as too low. Stepic has told investors he’s “relaxed” about his capital levels. He also increased the firm’s dividend payout for the last year even as profit declined by 25 percent, defying regulatory calls to retain more earnings.

A Stepic successor from the outside may be more focused on boosting capital and reducing risks, Berenberg’s Papoula said. Stepic has worked at Raiffeisen for four decades and led the eastern European expansion of the lender, whose roots go back to 19th-century farmers’ cooperatives.

“If Raiffeisen goes for an internal successor, the concern is that he’s ingrained in the same culture of opportunistic growth with light capital,” she said. “An external successor might bring change, hopefully stronger risk management especially when it comes to capital levels.”

Loan Losses

The CEO decision will be made by Raiffeisen’s supervisory board led by Chairman Walter Rothensteiner, CEO of RZB. Thirteen of the supervisory board’s 15 members are executives or employees of companies in the Raiffeisen group.

The bank may name Stepic’s deputy Karl Sevelda as caretaker CEO, WirtschaftsBlatt newspaper reported today. Among the candidates for a permanent successor are board members Martin Gruell and Johann Strobl, Uniqa Versicherungen AG CEO Andreas Brandstetter and Casinos Austria AG CEO Karl Stoss, Austrian media have reported.

Raiffeisen’s provisions for delinquent loans in the first quarter declined 43 percent from the previous three-month period and were 10 percent lower than analyst estimates. Costs also fell by more than forecast. The company reiterated it expected to maintain both the net interest margin and bad debt charges at the level of last year this year and increase costs only “slightly” due to an acquisition in Poland.

The figures for the quarter were “decent results,” said Stefan Nedialkov, an analyst at Citigroup Inc., in a note to clients. “The market should like the better provisions and give some partial credit to the beat in costs.”