Raiffeisen Bond Rout Deepens as Swaps Show 70% Default RiskJohn Glover and Boris Groendahl
Bonds of Raiffeisen Bank International AG fell for a 12th day amid investor concern they may be forced to take losses as international sanctions and the slumping oil price undermine the lender’s business in Russia.
The bank’s 500 million euros ($570 million) of 4.5 percent subordinated notes maturing in February 2025 fell 2.6 cents on the euro to a record 48 cents, taking their decline this year to about 38 percent, according to data compiled by Bloomberg. Credit-default swaps on the lender’s junior debt signal a 70 percent probability of default within five years.
Raiffeisen is the foreign bank with the most at risk in Russia and the Vienna-based lender said this month that 2014 losses could be as much as 500 million euros. Under a bank resolution law that came into force Jan. 1, Austrian state aid would only be available after bondholders took losses.
“If they do need capital, people see the risk the government will just bail you in,” said Laurent Frings, co-head of credit research at Aberdeen Asset Management Plc in London, which oversees about $525 billion and doesn’t hold Raiffeisen bonds.
Chief Financial Officer Martin Gruell said Jan. 26 that the bank doesn’t plan to sell new shares and will continue to “comfortably meet all regulatory capital requirements.”
The company’s 307 million euros of 5.169 percent bonds jumped after Susanne Langer, a spokeswoman at Raiffeisen in Vienna, said in response to e-mailed questions that the lender expects to pay the coupon on the notes due in May. There is “no indication that the regulator will step in” to prevent payment, she said.
The bonds, issued through RZB Finance Jersey IV, rose 2.3 cents on the euro to 32.7 cents. The company has no plans for a capital increase, according to the e-mail.
Raiffeisen Bank International is the eastern European unit of a cooperative group made up of 490 local lenders and nine regional banks. Collectively, they have assets of 282 billion euros, equivalent to 87 percent of Austria’s 323 billion-euro economy.
The cost of default swaps insuring the lender’s senior bonds rose six basis points to 395 basis points, up from 260 on Jan. 2, according to prices from CMA. Contracts on its subordinated debt cost 4.2 million euros in advance and 500,000 euros annually to insure 10 million euros of bonds for five years.
The company’s stock fell as much as 5.27 percent to a record 8.81 euros and was down 4 cents at 8.9 euros as of 1:50 p.m. in Vienna. The stock has lost more than 27 percent this year, reducing the lender’s market value to 2.69 billion euros.
In the first nine months of 2014, Russia contributed 55 percent of Raiffeisen’s pretax profit, before consolidation effects. That’s up from 42 percent in the full year of 2013 and 37 percent in 2012.
Losses on the bonds may have snowballed because investment banks have pulled back from trading the securities, said Robert Montague, who helps oversee about $8 billion as a senior credit analyst at ECM Asset Management in London.
“The investment banks aren’t willing to take the risk on to their books,” he said. “Nobody’s willing to catch a falling knife. Market moves are exaggerated because liquidity is so sparse.”