Banking: RZB/Raiffeisen merger plans shock investors


Guy Norton
Published on:

Bank chiefs deny overwhelming problems; Merger aimed to create stronger institution


Herbet Stepic: confident of the strength of the business model 

Herbet Stepic: confident of the strength of the business model

After one of the most challenging years for the Austrian banking sector news that Raiffeisen Zentralbank (RZB) is merging with its central and eastern European banking arm, Raiffeisen International, has set off alarm bells.

Shares in Raiffeisen International, which is 70% owned by RZB and was spun out of the group in 2005, fell by as much as 20% in the space of a few days in late March on the back of fevered speculation about the underlying reasons for the merger and a marked deterioration in Raiffeisen International’s financial results in 2009.

On a provisional basis net profits at Raiffeisen International fell by almost 80% on 2008 to €212 million. A sharp rise in bad-debt provisioning was the primary cause of the slump in profitability, climbing 122% to €1.74 billion, compared with €780 million in 2008.

With sentiment towards the Austrian banking sector still shaky after the emergency nationalization of Hypo-Alpe-Adria Bank at the end of 2009 there are concerns that after years of plenty for the sector, far tougher times lie ahead. A merger between RZB and Raiffeisen International might produce a single institution with more financial clout and improved access to capital.

At a hastily arranged press conference in Vienna, RZB chief executive Walter Rothensteiner and Raiffeisen International head Herbert Stepic were quick to scotch press reports that the merger plan was a last-chance survival option for either of the two banks, claiming a deal would enable Raiffeisen International to sell more sophisticated products to its clients thanks to RZB’s strong commercial banking business. "Both RZB and RI respectively show profitable and strong capital bases and they can therefore demonstrate sustainable business models on a standalone basis," says Stepic.

Raiffeisen International will retain its stock market listing in Vienna and Stepic assured shareholders that they would not be disadvantaged by a deal. "Should a new structure of the company emerge we can assure that a fair and transparent valuation will be carried out," he said. "Access to the equity capital markets is, and will remain, extremely important to us and therefore an unfair valuation would be counterproductive and against our normal interest."

In recent years Raiffeisen International’s shareholders have had a rollercoaster ride. The bank’s shares hit a high of €122.50 in June 2007 before the onset of the global credit crunch. They then hit a low of €13 in February 2009 at the height of investor concerns about economic risks in central and eastern Europe, before recovering to trade at €41 ahead of the announcement of the provisional 2009 financial results and the merger plans. By late March they were trading at €34. The merger proposal will be put to shareholders at annual meetings in July.