Raiffeisen Profit Beat Outweighs Ukrainian Loss Warning

Raiffeisen Bank International AG, the Austrian bank that’s the biggest foreign lender in Ukraine, beat analysts’ earnings estimates and promised to win approval to repay state assistance soon, sending its shares higher.

Net income in the first quarter rose 2.5 percent to 161 million euros ($220 million), the Vienna-based bank said today, beating the 128 million-euro average estimate in the company’s survey of 15 analysts. Regulators in Austria, who had blocked the bank’s effort to repay the government due to the risk of losses in Ukraine and Russia, will now approve a first tranche within four weeks, Chief Executive Officer Karl Sevelda said.

“Despite a very challenging political and economic environment, we were able to keep our income stable,” Sevelda said in the company’s earnings statement. “Business in Russia was relatively normal, although the economic development was weaker than in the previous year, and we therefore had to apply stricter standards in extending loans.”

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

Shares Rise

Raiffeisen jumped as much as 5.8 percent in Vienna, the biggest intraday gain in two weeks, even as the company scrapped its two month-old forecast for stable risk costs and a return to loan growth this year.

The shares were up 4.7 percent to 23.18 euros at 12:09 p.m. local time, the best performance in the 43-company Bloomberg Europe Banks and Financial Services Index, which fell 0.5 percent.

Raiffeisen, which is the second-biggest bank in eastern Europe after Italy’s UniCredit SpA, said its loan book would stagnate at the “approximate level” of last year. It now expects loan-loss provisions to rise as much as 22 percent to 1.4 billion euros this year, rather than remain little changed. Risk costs already rose at its Ukrainian and Russian units in the first quarter.

“This should not come as a shock, but is not reflected in consensus forecasts,” said Johan Ekblom, an analyst at Bank of America Corp. who rates Raiffeisen neutral. “In the near term, the more cautious guidance is likely to dominate.”

State Aid

Raiffeisen, which sold 2.8 billion euros of new shares in January to bolster its reserves with one of the biggest euro-area bank equity raisings this year, expects to get regulatory approval within the next four weeks to repay at least some of the Austrian state’s 1.75 billion euros that it received five years ago.

Approval of the repayment, which would save Raiffeisen from paying the aid’s 8.5 percent coupon, was delayed as the FMA regulator and Austria’s central bank asked Raiffeisen to keep extra reserves due to the worsening situation in Ukraine and Russia, FMA co-President Helmut Ettl said yesterday.

“The FMA has notified us that the approval will be granted promptly, enabling repayment to take place in the next three to four weeks,” Sevelda said in the statement.

Raiffeisen’s core equity Tier 1 capital ratio, a measure of a bank’s ability to withstand losses, stood at 9.9 percent of risk-weighted assets according to the fully phased-in new Basel III rules, the bank said. The European Central Bank demands at least 8 percent from banks it will start supervising later this year.

Further Uncertainty

Russian pretax profit in the quarter fell 30 percent from a year earlier as loan-loss provisions rose and trading income fell. In Ukraine, provisions and a trading loss pushed the business to a 24 million-euro loss, the first quarterly loss in more than a year.

Raiffeisen’s new forecast for loan losses, which exceeds the average analyst estimate of 1.2 billion euros, is based on the assumption that the Ukraine crisis doesn’t escalate further and no unexpected results of the ECB’s asset quality review turn up, Raiffeisen said.

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