Raiffeisen Quarterly Profit Slides on Eastern Europe Woes

Raiffeisen Bank International AG, eastern Europe’s second-biggest bank, said profit fell in the second quarter and capital ratios shrank amid an economic downturn in the region.

Net income fell 25 percent from a year earlier to 120 million euros ($160 million), the Vienna-based bank said in a statement today. Earnings missed the 136 million-euro estimate of 22 analysts surveyed by the company. Raiffeisen’s core Tier 1 ratio, a key measure of financial strength, slid to 10.4 percent on June 30 from 10.7 percent at the end of 2012.

“We are continuously evaluating the level and structure of our regulatory capital to be able to act promptly and flexibly,” Raiffeisen said. “Depending on market developments, a capital increase also continues to be a possible option.”

Bolstering capital is the biggest challenge facing Raiffeisen’s new chief executive officer, Karl Sevelda, who was appointed in June. While investors and regulators have pushed for a share sale, he has to overcome opposition at Raiffeisen Zentralbank Oesterreich AG, the bank’s parent company, which is owned by 494 local cooperatives.

Profit before tax in central Europe dropped to 71 million euros in the second quarter from 111 million euros a year earlier, on lower income from asset valuations of financial investments and higher administrative expenses, the bank said. Pretax profit in southeastern Europe fell 19 percent to 154 million euros, it said.

NII Surprise

Net interest income rose 10 percent to 972 million euros, exceeding analysts’ estimate of 866 million euros. Provisions for doubtful loans climbed less than 1 percent to 249 million euros, compared with analysts’ estimate of 247 million euros.

Raiffeisen rose as much as 3.4 percent in Vienna trading, and was 2.3 percent higher at 25.99 euros by 12:35 p.m. The stock has fallen 8 percent in the last 12 months.

“The key positive surprise is net interest income,” said London-based Berenberg bank analyst Eleni Papoula, who recommends that investors sell their shares in the lender. “It replaced some central bank deposits with higher-yielding securities.”

The lender will look to cut assets in Hungary, Croatia and Slovenia, Sevelda said today at his first earnings press conference as CEO. While the bank weighs a capital increase, it is also looking to cut costs and may be able to attract a financial investor, he said.

“Without question all the banks have to save,” said the CEO, adding that concrete decisions about the cost-cutting program will be made in September. “There is room for improvement.”