Raiffeisen Plummets as Merger Plans Spark Shareholder Concerns

  • Reviews merger with parent to ease regulatory pressure on RZB
  • Bloomberg reported in November that a merger was in the works

Raiffeisen Bank International AG plunged 11 percent on concern its plans to merge with its Austrian cooperative owner will be on terms that disadvantage minority shareholders.

RBI and its majority owner, Raiffeisen Zentralbank Oesterreich AG, will evaluate a merger and take a decision before year-end in a deal that would help ease regulatory pressures, Chief Executive Officer Karl Sevelda told analysts on a conference call on Wednesday. The stock dropped 10.1 percent to 12.20 euros at 2:44 p.m. in Vienna, the biggest drop since June.

“Capital constraints at the RZB level seem to be the prompt for a potential merger,” Barclays Plc analysts led by Kiri Vijayarajah said in a note to clients. “At this stage, we have very little visibility on the impact a transaction might have for RBI shareholders.”

Raiffeisen, which is co-owned by about 1.7 million Austrians through 477 local credit unions that own eight regional banks, is seeking ways to shore up capital buffers as regulators toughen scrutiny on banks’ balance sheets across the euro region. While the publicly traded arm is able to sell new shares to meet regulator requests, neither RZB nor the regional Raiffeisen Landesbanks have access to equity markets.

The European Central Bank is “interested in an optimal capitalization and in a simplification of our, let me say, not uncomplicated structure,” Sevelda said. The eight regional banks own RZB, which holds 61 percent of RBI.

“The economic situation of the majority shareholder is of some importance” for the bank, Sevelda said. “The reduction of complexity is also in the interest of RBI, and the streamlining of the decision-making processes, the increasing transparency at the group level and the improvement in governance are also advantages for RBI.”

RZB CEO Walter Rothensteiner has said that the move becomes more pressing ahead of rules taking effect over the next years that will disqualify some of lender’s regulatory capital. Bloomberg reported in November that a merger was in the works.

Capital Target

Sevelda said that a decision on the merger could be made around the group’s half-year results, which are scheduled for Aug. 18. If the companies agree to go ahead, the deal could be completed in the first quarter of next year and the new company would remain listed, according to the CEO.

While RBI maintains its target for a common equity Tier 1 ratio, a measure of financial strength, of 12 percent, a combined company may reassess the ratio, Sevelda said. The addition of other Raiffeisen companies, such as RZB’s biggest shareholder Raiffeisenlandesbank Niederoesterreich-Wien AG, isn’t currently being considered, he added.

The RBI stake is RZB’s biggest asset. The group, which acts as a central bank for the Raiffeisen sector, also owns 31 percent of Uniqa Insurance Group AG, as well as an asset management company and a building society.

The second-biggest Western European bank operating in the former communist part of Europe also said that first-quarter net income rose to 114 million euros ($130 million) from 83 million euros a year earlier, as bad-debt provisions shrunk. Lending revenue declined by about 12 percent to 718 million euros, hurt by low interest rates, while fee and commission income was little changed.

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