Erste posts Q4 loss due to provisions and amortizations

Provisions and amortizations worth some €500 million of the goodwill fund, including its Romanian subsidiary, swallowed the earnings of last year's final quarter of Austrian Erste Group, majority shareholder of Banca Comerciala Romana (BCR). The net profit reported by Erste Group for 2008 amounts to €860 mln, €603 mln less than the net result registered at the end of last year's first three quarters, according to calculations made based on preliminary results.

The price of Erste shares plunged some 11 percent on the Bucharest Stock Exchange (BVB), once the Austrian lender announced its financial results, which indicate a 27 percent annual drop in the company's earnings. "In spite of an extremely difficult fourth quarter, these preliminary results emphasize Erste Group's solid foundation. We enjoy good financing and are profitable, and we believe that measures we have taken to strengthen risk management and cut costs will ensure that we have a good positioning to face any challenges that 2009 could bring," said the group's Chief Executive Officer (CEO), Andreas Treichl. The lender's operating profit rose 19 percent year-on-year in 2008, above the initial 15 percent target.

On the other hand, the Austrian Raiffeisen International lender, which controls Raiffeisen Bank Romania announced it will not revise the value of the goodwill fund of divisions in emerging European countries downwards, as Erste Bank did. BCR's total intangible assets dropped by over €1 billion, to €2.7 bln, by the end of 2008. The reasons for Erste Group's decision are the additional cut in the goodwill fund and the value of client relations due to the sale of insurance operations (€112 mln), the linear amortization of client relations (€69 mln), and the effects of the depreciation of the leu which did not affect the profit and loss account (€370 mln).

Moreover, given the deterioration of the macroeconomic environment in the past months, Erste Group decided to raise risk provisions in all its subsidiaries.

Operating revenues of Erste soared some 14 percent in 2008, to €7 bln, while with the help of a reduction in costs of almost 10 percent in the fourth quarter, these increased by less than one tenth, to €4 bln for the whole of 2008. This means the bank had better evolution than it initially estimated.

The net profit for 2008, including the positive effect of selling off its insurance operations and the negative reevaluation of certain financial assets due to the persistence of negative market conditions, especially in December 2008, exceeds €1.3 bln. The group's Board of Directors decided to allocate the revenues obtained from the sale of the insurance operations for the partial amortization of the goodwill fund in Romania (€480 mln), and total amortization in Ukraine and Serbia (€87 mln). BCR is the Romanian banking system leader, with an asset portfolio worth €17 bln. Its profit was expected to reach the €600 mln threshold in 2008.

Business Standard