Breve nota EXANE
Raiffeisen Bank Intl
Usually the conference calls of Austrian banks are wishy washy and questions are often qualitative. Well not this one. 620 people dialled in and there was a barrage a very detailed and to the point questions. Some questions were answered, some should be answered on the 9th of February when preliminary full year results will be released.
We expect the shares to recover further in the coming days. RBI trades at what we consider to be an unwarranted distressed valuation (0.4x 2015e TBV).
Capital: RBI managed to achieve a 10% FL CT1 ratio at year end as the negative impact of currency depreciation was offset by a decline in RWAs. The minimum capital requirement for 2014 was for a total capital ratio of 13.8% a transitional basis. A new requirement for 2015 should be set by the ECB in the coming weeks and they are pretty relaxed about it on the basis of the draft letter already received. At present there are no legal requirements with regards to a minimum CT1 ratio (other than the minimum 4.25% in CRD4) but it cannot be excluded that a minimum could be introduced. The appreciation of the CHF will have no impact on RWAs and neither will the credit rating downgrade of Russia (a bit strange but this is what they said). The ECB looks at RBI on a consolidated basis hence capital fungibility (i.e. higher capital requirements in some countries) is not an issue in the eye of the regulator.
Update on Russia: RBI is not excessively worried about Russia. With regards to corporate loans the Russian subsidiary predominantly focuses on FX loans to customers with USD or USD linked revenues. Retail loans are all in Ruble, have an average maturity of 2 years and are at fixed rate (so the increase in interest rates should not have an impact on clients). The main risk would be a significant increase in unemployment. Capital ratios in Russia are 2% above the minimum requirement (on a total capital basis) and the buffer will be kept. RBI has not stopped lending in Russia, they are just more selective. Liquidity of the Russian subsidiary is very good. USD 1.5-2bn is upstreamed to the parent company on a daily basis and the subsidiary is not using funding from the central bank. At year end E981m of funding was downstreamed to Russia, but a significant portion is covered by guarantees from the Republic of Austria which will last for another 3-5 years, cover political risk and expropriation risk and have a fixed cost. In 2015 the Russian subsidiary paid a E440m dividend to the parent, so far there are no dividend restrictions in Russia and they intend to pay a dividend to the parent company also in 2015.
Update on Ukraine: At year end 2014 E520m of funding was downstreamed to Ukraine the bulk of which is guaranteed by the Republic of Austria RWA reduction plan: All the details on the 20% RWA reduction plan will be announced on the 9th of February and it will not just be a general chat. Measures will range from organic reductions (a lot of loans are of short term nature), sale of portfolios and some business exits. Mechanically a 20% reduction in RWAs would lift the CT1 ratio by 250bps. There is no need for a firesale as capital ratios are at comfortable levels
Poland: E2.9bn of CHF loans with a 4.7% NPL ratio (vs 10.2% for the whole of Polbank). Stopped lending in 2009 and regulations in Poland weere anyway quite strict. There is an agreement to list the company by mid 2016 (either 15% with dual listing of RBI in Warsaw or 25% listing without dual listing). Could float more but no decision has been made.
Contingent liabilities: The CFO indicated that the only contingent liability is the one under the cross guarantee scheme of the Raiffeisen group (essentially for the deposits of clients of the local raiffeisen banks). This answer may however not be correct in our view. There were a lot of questions on this and we would expect the company to have all the details on the 9th of February.
Other: No exposure to the Region of Carinthia, no intention to do liability management at present, expects to pay coupons on hybrid capital, no intention to reissue private or private participation capital.
