Bloomberg News

Raiffeisen Sacrifices Growth to Keep Dividend and Avoid Sale

March 29, 2012

Raiffeisen Bank International AG (RBI), eastern Europe’s third-biggest lender, is sacrificing growth this year to be able to pay shareholders a dividend and avoid selling stock to fill a capital hole found by regulators.

Chief Executive Herbert Stepic said the group would not expand its loan book this year because the bank is focused on filling a 2.1 billion-euro ($2.8 billion) gap determined by the European Banking Authority. Meeting EBA requirements with a share sale is “suboptimal” at current prices, and owners deserve a dividend when Raiffeisen makes profits, he said.

“We don’t see big growth this year because we have to first comply with our EBA goals before we think about starting to grow again,” Stepic told analysts in Vienna. There will be “modest growth if at all,” Stepic said, adding he would only be able to say more “when we know we have the EBA in the kitty.” It will “depend very much on how successful we are in creating capital from different sources,” he said.

The EBA told banks to hold 9 percent of risk-weighted assets as core reserves by the end of June to protect against the fall of euro area government bonds. Raiffeisen and parent Raiffeisen Zentralbank Oesterreich AG (RZBOPA) are trying to meet the goal mostly by lowering assets and risk weightings, and by making existing capital compliant with the EBA’s rules.

UniCredit SpA (UCG), Raiffeisen’s biggest rival in eastern Europe, scrapped its dividend and sold new shares this year to reach EBA requirements. Raiffeisen’s Austrian peer Erste Group Bank AG (EBS) also skipped the dividend.

‘Makes No Sense’

Raiffeisen is proposing to pay out 1.05 euros a share for fiscal 2011, the same amount it paid last year for 2010. The lion’s share of the payout will go to RZB, which owns 78.5 percent of Raiffeisen. The average estimate of 17 analysts surveyed by Bloomberg was 27 cents a share, with all but one estimate at less than 1.05 euros. Net income declined 11 percent to 968 million euros ($1.3 billion) last year.

“The ‘no-growth’ outlook and the dividend are the low points today,” said Daniele Brupbacher, banking analyst at UBS AG in Zurich. “The dividend simply doesn’t make sense for the minority shareholders as long as core capital levels excluding state aid are so low.”

Raiffeisen, which is based in Vienna and operates in Austria and in 15 former communist countries, had 9 percent core Tier 1 capital at the end of last year, up from 7.9 percent three months earlier. Almost a third, or 2.5 billion euros, consists of state aid and of reserves that will be phased out by regulators.

‘Giving Away’

Stepic said the market was “suboptimal” for a share sale, echoing RZB Chairman Christian Konrad, who said last week that a share sale at current prices would mean “giving away” the bank.

Raiffeisen fell 38 cents, or 1.4 percent, in Vienna trading and closed at 25.91 euros a share. That is 29 percent below the bank’s book value of 36.50 euros at the end of last year.

Raiffeisen and RZB addressed 1.9 billion euros of the EBA shortfall by a “capital clean-up” and a reduction of “non- core” activities that reduced capital needs by 1.45 billion euros, said Johann Strobl the chief risk officer of Raiffeisen and RZB, as well as by changes that made 450 million euros of capital EBA-compliant.

Before the end of the EBA deadline in June RZB will also swap some of its non-voting capital into common stock, and make accounting changes. Together that will turn another 800 million euros of reserves into capital the EBA recognizes.

Stepic said a share sale remained an option to raise capital, depending on market developments. Raiffeisen shelved plans for a share sale last year after currency losses pushed its Hungarian unit into a loss and helped send the lender’s stock down by more than 50 percent.

Revival Discussed

Raiffeisen discussed a possible rights offering and may seek as much as 1 billion euros, people with knowledge of the talks said last month. The lender hasn’t yet decided whether to proceed with the share sale, the people said.

Raiffeisen confirmed preliminary full-year results which were released Feb. 22, more than a month ahead of schedule. Fourth-quarter net income declined 27 percent to 222 million euros, partly due to a writedown on its Ukrainian unit Bank Aval. The profit was helped by valuation gains on Raiffeisen’s own debt, as well as special gains on derivatives.

Stepic said plans were intact to buy EFG Eurobank Ergasias SA (EUROB)’s Polish unit in a deal that will make Poland Raiffeisen’s biggest market. The purchase price of 490 million euros agreed for a 70 percent stake last year was still appropriate and the deal will close in the second quarter, Stepic said.

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

To contact the editor responsible for this story: Frank Connelly at

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