Raiffeisen Sees Another Loss As Sales To Cause Writedowns

Raiffeisen Bank International AG, eastern Europe’s second-biggest lender, could report another loss this year as it sells assets for less than book value under a restructuring plan to shrink its business by a fifth.

The program, meant to help restore capital ratios, will cost 550 million euros ($600 million), with the majority booked this year, Chief Executive Officer Karl Sevelda told journalists in Vienna on Wednesday, adding that it may take until 2016 to return to profits.

Turmoil in Ukraine, Hungary’s banking legislation and bad loans in Asia pushed Raiffeisen into its first ever net loss in 2014. Analysts surveyed by the company estimated average net income of 203 million euros in 2015, according to its website.

“Our business model is intact,” Sevelda said. “We’re not shrinking across the board but very selectively. Our program is designed to last two to three years and our measures are on track.”

Raiffeisen decided in January to raise its capital buffers by scaling back its business over the next three years. To avoid selling new equity, the lender plans to sell its Polish bank, the most recent acquisition, and to curb units including its biggest profit generator, a Russian bank.

Raiffeisen dropped 1.3 percent to 12.11 euros by 3:45 p.m. in Vienna, taking its loss this year to 3.4 percent and valuating the company at 3.5 billion euros. The STOXX 600 Banks index has risen 14 percent this year.

Raise Buffers

Sevelda reiterated that raising the bank’s common equity Tier 1 capital ratio, regulators’ key gauge of financial strength, to 12 percent is his top priority until the end of 2017.

“We’ve said that the overriding goal is to reach the capital ratio of 12 percent by the end of 2017,” Sevelda said. “All other goals are secondary.”

Raiffeisen plans to raise the capital ratio by two percentage points mostly by reducing risk-weighted assets, which should have reached 65 billion euros by the end of 2017, compared with 69 billion euros by the end of last year.

Raiffeisen will cut its RWAs in China, Singapore, and the U.S. by 3.5 billion euros and may sell the U.S. unit. It plans to cut them in Russia by 20 percent from 8.4 billion euros, and in Ukraine by 30 percent from 3 billion euros. The bank plans to cut costs by 20 percent from 3 billion euros in 2014, seeking for a 11 percent return on equity, a measure of profitability, once measures are concluded.

Poland IPO

The sale of Raiffeisen Bank Polska SA, one of the biggest elements of the shrinking plan, is in “phase one,” Chief Financial Officer Martin Gruell said. The Polish regulator KNF’s demand to list the unit before selling it isn’t delaying the process, he said.

“There is great interest in our bank,” said Sevelda. “As expected, the Polish regulator has made very clear that it’s interested in being closely involved in the process, and we’re in permanent contact and see no reason to doubt the successful sale.”

Only the Polish and Slovenian units will be sold, and in Ukraine, the bank is in talks to sell a minority stake in its Raiffeisen Bank Aval unit to the European Bank for Reconstruction and Development, he said.

Raiffeisen confirmed the 493 million-euro net loss for 2014 it already reported on the basis of preliminary results Feb. 9. The net loss in the fourth quarter, which hadn’t been reported separately, was 718 million euros, after net income of 146 million euros a year earlier, it said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE