Raiffeisen Rises on Bank’s Plan to Proceed With RZB Merger

  • Deal removes capital ‘bottleneck’ for Raiffeisen’s growth
  • Merger will cause only ‘limited’ dilution of minority holders

Raiffeisen Bank International AG rose to the highest in about 10 months after announcing that it will go ahead with a plan to merge with its parent to address a capital shortfall at Austria’s biggest group of credit cooperatives.

RBI climbed as much as 2.8 percent to 14.39 euros in Vienna, the highest since Dec. 9. The company intends to combine with Raiffeisen Zentralbank Oesterreich AG in a stock deal first flagged in May to remove a capital shortfall at the parent level that has become an obstacle for RBI, Chief Executive Officer Karl Sevelda said. RBI shareholders will vote on the plan at a meeting in January.

Karl Sevelda

Photographer: Lisi Niesner/Bloomberg

“The merger is, especially in the mid and long-term, beneficial for all shareholders,” Sevelda told journalists in Vienna. “The lower capital ratios at RZB due to minority deductions have turned this factor into a real bottleneck, and this bottleneck would be removed with the merger.”

According to a preliminary valuation of the companies, the deal would reduce the proportion of shares owned by outside minority holders to about 35 percent from 39 percent, the banks said. That “limited dilution” should “reassure investors,” Societe Generale SA analyst Alan Webborn said in a note to clients.

Minority Deductions

RZB is the central institution in a cooperative owned by about 1.7 million Austrians through more than 400 local credit unions. The group is seeking to shore up capital as its multi-layered ownership structure and RBI’s business in emerging markets of eastern Europe including Russia and Ukraine have weighed on reserves.

RBI traded at 14.32 euros at 9:45 a.m., bringing this year’s gain to 5 percent and giving the bank a market value of about 4.2 billion euros ($4.7 billion).

RBI listed the “improved overall capitalization” due to the “elimination of current and future minority deductions on RZB level” as one of three key objectives of the transaction in a presentation for an investor telephone conference posted on its website. The other goals are improved governance and increased transparency. The conference call is due to begin at noon in Vienna.

Weakness Exposed

RZB’s capital weakness was exposed in the results of a stress test the European Banking Authority published in July. RZB’s direct parent, Raiffeisen-Landesbanken-Holding, saw its common equity Tier 1 capital fall to 6.1 percent in the test’s adverse scenario, beating only Banca Monte dei Paschi di Siena SpA and Allied Irish Banks Plc, coming within a whisker of the level the European Central Bank has indicated as unacceptable.

The merger would prevent capital deductions at RZB required under new capital rules for subsidiaries that aren’t fully owned. It would also simplify the group’s holding structure by making RZB’s owners, eight regional Raiffeisen banks led by Raiffeisenlandesbank Niederoesterreich-Wien AG and RLB Oberoesterreich AG, direct owners of RBI.

Under the terms of the deal, RZB’s shareholders would receive newly issued RBI shares as compensation for the businesses RZB contributes to the combined company. The share count would rise by as many as 39 million to as many as 331.5 million.

As of June 30, the combined bank would have a fully-loaded common equity Tier 1 capital ratio of 11.3 percent, compared with 12.2 percent for RBI and 10.6 percent for RZB at the same date. The bank plans to increase that ratio to 12 percent by the end of 2017 and raise it further in the years after.

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