Bloomberg News

Volksbanken Has Orban Loss in Hungary Unit Sold to Sberbank

November 27, 2011

(Updates with eastern Europe loss in second paragraph.)

Nov. 25 (Bloomberg) -- Oesterreichische Volksbanken AG said it still expects the sale of eastern European bank units to OAO Sberbank to close by the end of the year as Hungary’s loan laws pushed the unit into a loss.

Volksbanken International, comprising nine banks in eight countries, swung to a loss of 36.8 million euros ($48.7 million) in the nine months to Sept. 30, from a 15.4 million-euro profit a year earlier, as it more than doubled the money set aside for bad loans, Volksbanken said in its quarterly report.

“The result of the central and eastern European banks is negatively impacted primarily by the uncertain economic policy situation in Hungary,” the bank said in the statement. This is due to Prime Minister Viktor Orban’s law forcing banks to swallow losses on foreign-currency mortgages and “the weaker economic prospects,” it added.

Sberbank, Russia’s biggest lender, is seeking to lower the price for the eastern European business, which comprises nine banks in eight countries, to about 500 million euros from 585 million euros agreed in September, because of the Hungary losses, people familiar with the situation said this week. Volksbanken expects to strengthen its capital with the completion of the sale this year, the company said today.

EBA Gap

Volksbanken, which was found twice to have a capital shortfall by the European Banking Authority this year and abandoned plans to repay state aid, said it expects a 10 percent wider 2011 loss than forecast in October.

The full-year loss will be at least 825 million euros this year after the Hungary charges and writedowns in Romania plunged it into a third-quarter net loss of 696 million euros compared with a 24.9 million-euro profit a year earlier.

The EBA found Volksbanken to have a capital shortfall of 972 million euros as of June 30, the lender said Oct. 27. It didn’t give an updated number for the shortfall, saying only that the capital ratio was about 5.5 percent, short of EBA’s 9 percent minimum.

While it will be “a challenge” to meet this target by June, Volksbanken said that the requirement was only “pro forma” because it is in the middle of a significant revamp.

Volksbanken is restructuring after forecasting an annual loss on Oct. 13 of as much as 750 million euros that scuppered its plan to repay state aid. The lender, majority-owned by a group of 62 regional cooperative banks, is selling assets and is planning a cross-guarantee alliance with those lenders to strengthen its capital buffers.

Volksbanken received 1 billion euros in state capital in 2009. Austria is set to gain the right to nationalize the bank because it hasn’t received a dividend yet. The regional cooperative banks own 61 percent of Volksbanken. Germany’s DZ Bank owns 23 percent, a unit of Munich Re owns 9 percent and Raiffeisen Zentralbank Oesterreich AG owns 6 percent.

--Editors: Jon Menon, Keith Campbell

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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