Erste Group faces €800m loss after loan writedowns

ERSTE GROUP Bank, emerging Europe’s second-biggest lender, said it would lose up to €800 million this year and not pay a dividend after taking hits on foreign currency loans in Hungary and euro zone sovereign debt.

It unveiled big goodwill writedowns in key markets Hungary and Romania and took another blow from changing the way it values off-balance-sheet credit default swaps.

The Austrian bank’s shares, which had slumped last month to a 2½-year low of €15.52, were down 13 per cent yesterday to €18 yesterday, off a low of €17 but badly lagging a 1.9 per cent higher European banking sector.

Andreas Treichl, chief executive, repeated a commitment to central and eastern Europe and expressed confidence his group would not require extra funds, in spite of mounting speculation about a strategy to recapitalise Europe’s struggling banks.

Acknowledging the current lack of clarity about Europe-wide plans, Mr Treichl said: “I think we will be fine.”

The comments came as Erste said it would postpone “by at least one year” its planned early repayment of €1.2 billion in Austrian government help taken during the credit crisis. The group said it could have repaid the money as planned, but had opted to wait given uncertain conditions and the “lack of any resolution of global sovereign debt issues”.

The 2011 dividend will be suspended.

The decision came as Erste forecast a €920 million to €970 million net loss for the first nine months of this year, after a loss of about €1.5 billion in the third quarter caused by writedowns and special charges.

The shift in sentiment hit rival Raiffeisen Bank International, whose shares dropped by 4.7 per cent to €21.20.

Erste’s dramatic swing to loss follows a net €180 million charge on its exposure to peripheral euro zone economies and the writedown of the entire goodwill on its Hungarian activities, costing a net €312 million.

Additionally, the bank will take a net €450 million charge, reflecting the impact of the Hungarian government’s controversial intervention in foreign exchange loans, and other changes. In Romania, Erste will write down the €1.8 billion goodwill on Banca Comericale Romana, resulting in a net €627 million charge. The group will retain €1.1 billion of BCR goodwill.

“Our hopes that we will see a solution to the sovereign debt crisis in Europe in the near future have decreased considerably over the last couple of weeks. We now assume that this will increasingly also have an impact on the real economy and will also affect our region, albeit less severely,” said Mr Treichl.

“We decided to throw all the ballast overboard in a painful, but correct, step”, Mr Treichl said. – (Copyright The Financial Times Limited 2011 / Reuters)