Erste cash call U-turn, profit forecast cut roils shares

Mon Jun 24, 2013 9:37am EDT
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By Michael Shields

VIENNA (Reuters) - Erste Group Bank (ERST.VI: Quote) on Monday reversed guidance from just two months ago, saying it plans a cash call to help repay emergency state funding and that operating profit will fall this year rather than hold steady.

Its stock fell almost 10 percent, roughly matching what analysts say will be the extent of earnings dilution from the new shares.

Central and eastern Europe's No. 3 lender said it will raise about 660 million euros ($867 million) in equity in the third quarter and that operating profit will fall as much as 5 percent this year.

The bank said it would repay 1.76 billion euros in non-voting participation capital it raised in 2009 to help it weather the financial crisis. Austria provided two thirds and private investors the rest.

The stock fell as much as 9.6 percent to 19.85 euros and was off 7.4 percent by 1325 GMT, against a 1.4 percent fall for the Stoxx European banking sector index .

Analyst Dirk Becker at Kepler Cheuvreux said it was disappointing that Erste had gone back on its promise not to issue shares, and that Austrian regulators had told the bank to replace at least a third of crisis funding from 2009.

"The short-term performance of the stock could now be negative because of the upcoming rights issue but we believe the long-term story remains attractive," he told clients in a note, keeping his "hold" rating.

Erste and the Austrian central bank declined comment on whether regulators had insisted on a rights issue to replace part of the aid. Finance Minister Maria Fekter called the repayment "more than positive for taxpayers".   Continued...

The entrance of the headquarters of Austrian Erste Group Bank is pictured in Vienna June 24, 2013. REUTERS/Leonhard Foeger