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Erste Group Bank said the worst of the crisis may now be over for banks in emerging Europe, after it beat third-quarter earnings forecasts and launched a 1.65 billion euro ($2.4 billion) cashcall.
Net profit at the third biggest lender in the former Communist bloc came in at 228 million euros in the three months to September — down 12 percent on the quarter but 21 percent ahead of the average estimate in a Reuters poll of 13 analysts.
Chief Executive Andreas Treichl, who has called for more mediocrity in banking to avoid brilliant but toxic assets, said he felt comfortable with his plain vanilla retail banking in Europe's east and saw signs that the tide may turn soon.
"We do not believe that the crisis is over", Treichl said in a statement. "But there are some encouraging signs, such as the slowing growth rate of non-performing loans, that the worst may be behind us," he added, echoing remarks made by Baltics-exposed Swedbank last week.
However, he stopped short of giving a forecast for this or next year's earnings.
Cash Call
Treichl late on Thursday asked shareholders to buy up to 60 million new shares in a rights issue at no discount to market prices to raise his core Tier 1 capital ratio to the 8 percent level that has become the new standard for banks.
Unlike peers including Societe Generale or BNP Paribas, Erste does not plan to pay back state capital with the fresh cash, although it will walk away from plans to raise hybrid debt from the Austrian government.
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"The market may view the 1.65 billion euros raised as being insufficient and may be disappointed that the bank has not tried to repay the government support early," said BofA Merrill Lynch analyst Cristina Marzea in a note to clients.
"There is risk of future government intervention, but more importantly, risk of overhang via future dilution, especially given higher ratios at peers," she added.
Under the rights issue, shareholders can subscribe to three new shares for every 16 they own from Monday, at prices close to the market but capped at 32 euros.
The stock closed up 7 percent at 27.50 euros on Thursday. Pricing at market puts Erste into sharp contrast with the other bank cash calls.
Swedbank's deal was sold at a 41-percent discount, SocGen's was offered 27 percent below market, and BNP Paribas's was 29 percent cheaper.
Results
In its earnings statement Erste said bad debts expanded at a slower rate in the quarter to September.
It raised lending revenue 4.4 percent on the quarter, more than analysts expected, while cutting costs 6.5 percent, faster than expected.
Erste said it set aside 557 million euros in reserves for bad debt, up 7 percent on the quarter, in particular in Romania, Slovakia and Hungary.
Non-performing loans grew slower than in the first half of the year, to 6.3 percent of the book.
Erste's cushion against possible loan losses expanded to 57 percent of non-performing loans from 55 percent — the first quarterly increase in years, alleviating a key concern investors have about emerging European banks' loanbooks.
Erste's rights issue will be lead managed by Erste itself, JP Morgan [JPM
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