Bloomberg News

Raiffeisen Cuts Outlook on Hungary, Details Capital Plan

November 25, 2011

(Adds capital options, share price from second paragraph.)

Nov. 24 (Bloomberg) -- Raiffeisen Bank International AG, eastern Europe’s third-biggest lender, cut its medium-term earnings outlook to the bottom of its target range after losses in Hungary sent profit sliding in the third quarter.

The Vienna-based bank said today that return on equity before taxes will be 15 percent, compared with the previous forecast between 15 percent to 20 percent, as its Hungarian unit’s “strategic positioning” is reviewed. Net income fell 58 percent to 130 million euros ($174 million) in the three months ended September, though that beat the 99 million-euro average estimate in a Bloomberg survey of nine analysts.

Shares of the Austrian lender recovered recent losses as the bank detailed plans to raise funds and satisfy regulators’ capital demands without selling new equity. Raiffeisen has suffered as Hungary imposed Europe’s highest tax on banks, which are also being forced to swallow losses on Swiss franc- denominated mortgages to ease the burden on Hungarian borrowers.

“Recently announced policy measures have weakened foreign investors’ confidence in the political system,” Raiffeisen said in slides presented today.

The bank’s loss in Hungary widened to 245 million euros in the quarter, and it increased the money set aside to cover bad debt more than fivefold. Raiffeisen’s Austrian peer Erste Group Bank AG, the second-biggest eastern European lender, set aside an extra 450 million euros for bad debt in Hungary in the third quarter and wrote down the value of its unit there.

Closing Gap

Raiffeisen has about 20 projects that could generate as much as 3.6 billion euros of capital and let the bank avoid selling new shares or resorting to state aid, today’s presentation showed.

The stock snapped an eight-day decline and rose as much as 7.8 percent in Vienna trading, the most since Oct. 12, as bank shares rallied across Europe. The shares were up 5.9 percent to 14.99 euros at 10:10 a.m. local time, the second-best performer in the Stoxx 600’s bank index. The stock is still down more than 60 percent this year.

“Raiffeisen has probably more self-help options than some thought,” said Daniele Brupbacher, an analyst at UBS AG, in an e-mailed comment. The fundraising plan “is achievable, but largely depends on market conditions,” he added.

Raiffeisen is working with its 79 percent owner, Raiffeisen Zentralbank Oesterreich AG, to comply with demands from the European Banking Authority and close a capital gap that widened by a third to 2.5 billion euros in the quarter.

Capital Swap

Measures outlined today include changes that increase the capital recognized by the EBA by 1.2 billion euros to 1.9 billion euros, asset reductions that would free up another 700 million euros to 900 million euros, and retained earnings of up to 800 million euros. Raiffeisen aims to fill the gap without asking for its second state capital injection in two years.

The measures to create EBA-compliant capital include a swap of 500 million euros to 1 billion euros of non-voting participation capital into either shares or convertible capital, Chief Executive Officer Herbert Stepic said last week. They also include “regulatory capital generation” at RZB and “various other measures,” Raiffeisen said, without elaborating.

The asset reductions consist of “selective business reduction” and a “capital and trading book clean-up,” it said in the presentation.

Lenders tested last month have until Dec. 25 to submit plans to national supervisors on how to raise reserves or reduce assets to meet a requirement for lenders to hold 9 percent in core reserves by June 2012.

--With assistance from Zoe Schneeweiss in Vienna. Editors: Keith Campbell, Francis Harris.

To contact the reporter on this story: Boris Groendahl in Vienna at

To contact the editor responsible for this story: Angela Cullen at

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