English• EBS shares dropped 10% upon news release
Austrian-based Erste Bank (EBS), the majority shareholder in Banca Comerciala Romana (BCR) has released preliminary results indicating a 19% increase in the operating profit for 2008 to 3 billion EUR and net earnings of 860 million EUR, down by 27% year-on-year, according to an announcement to the Bucharest Stock Exchange. The profit drop was caused by the full write-down of intangibles related to the Ukrainian and Serbian operations and to the partial write-down of intangibles in Romania, amounting to a total some 570 million EUR.
"The net profit for the year 2008, including the positive impact of the sale of the insurance business and the negative revaluation of certain financial assets as a result of the continued difficult market conditions, particularly in December 2008, exceeds 1.3 billion EUR," the press release wrote. However, following a thorough review of activities across its operating region the Group"s management has taken the decision to adjust the business plans for 2009 to 2011 to reflect the expected impact of the worldwide economic slowdown on Austria and the CEE region in the near term.
"Against the backdrop of an exceptionally difficult fourth quarter, these initial results underline the solid foundation on which the Erste Group is based," said Erste Group CEO Andreas Treichl upon expressing confidence in the Group"s ability to withstand future challenges. "The steps we have taken to further tighten our risk management and reduce costs, together with our dedication and commitment to providing an unrivalled service to our over 16 million customers, we believe that Erste Group is well positioned to withstand whatever new challenges 2009 may bring," he added.
In the full year 2008 operating revenues improved by almost 14% to 7 billion EUR while - supported by a cost reduction of nearly 10% in Q4 2008 - operating costs increased by less than 10% (to 4 billion EUR) for the FY 2008 - substantially better than forecast, the Group announced. The total negative profit & loss result from financial assets is expected to amount to nearly 570 million EUR pretax in 2008 including a write-off for exposures to Icelandic Banks (booked in Q4 2008) and to Lehman Brothers. Nevertheless, Erste Group expects to report a clean full year net profit for 2008 of 860 million EUR, underlining the solid, sustainable earnings capability of the retail-focused operating model.
Nicu Grigoras, a broker with Intercapital Invest, believes that Erste Bank"s significant exposure on Eastern Europeans market could turn from a major competitive advantage in the past into a disadvantage now." Even though the Austrian group achieved very good financial results in 2008, taking full advantage of the first nine months of economic growth in Eastern Europe, investors will be very attentive to the perspectives of this region," Grigoras believes. In his view, if the new market conditions remain the same or worsen, Erste Group"s profitability will probably be negatively affected by the significant exposure in Eastern Europe. "However, a very important factor of significant influence on the performance of European banks is actually the performance of the American financial system and the high volatility of banking stock," Grigoras concluded.
Paul Brendea, a financial analyst with Prime Transaction, commented it was expectable to see Erste take some losses as a result of the write-downs, considering their fairly aggressive expansion policy on Eastern European markets, as well as the performance of the banking system and the macro-economic indicators of this region in the past year. "Anyway, the EBS shares have been on a swiftly downward trend on the WSE for a long time, so the publication of the results expedited the approach to a new historical low of less than 10 euro per share," Brendea said.
As soon as the preliminary results were released, EBS shares dropped 10% on the Bucharest Stock Exchange to an average of 43.3 RON/share.
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