Raiffeisen International, RZB seek to calm market tension over possible merger

Raiffeisen seeks to reassure markets over merger

VIENNA — Austrian bank Raiffeisen International and its parent company Raiffeisen Zentralbank sought Friday to calm market worries over a possible merger, saying it would strengthen operations and was not being considered out of financial necessity.

Earlier this week, the two companies said they were “taking a closer look” at a possible merger as one of several possible strategic options, causing Raiffeisen International’s shares to drop considerably among speculation about the timing and reasons for the move.

Raiffeisen International Bank-Holding AG is a fully consolidated subsidiary of Raiffeisen Zentralbank Oesterreich AG (RZB), which owns about 70 per cent of the common stock. It operates in 17 countries in Central and Eastern Europe and was among other financial institutions that offered euro or Swiss-franc loans at low rates in the region as growth boomed. That was lucrative for both banks and borrowers until local currencies plunged amid the credit crunch, sending borrowers’ payments soaring and causing defaults and losses.

“The current market conditions and the market changes that can be expected in the future make it indispensable for a managing board that takes its responsibilities seriously to continuously investigate what possibilities exist to ensure the organization’s optimal corporate structure,” RZB CEO Walter Rothensteiner said in a statement.

“Our goals are to continuously improve the benefit for our clients, to optimize our cost efficiencies and to strengthen our positioning on our home market, which consists of Austria and Central Europe.”

Speaking at a hastily arranged news conference with Raiffeisen International CEO Herbert Stepic, he denied speculation that capital concerns had led to the consideration of a merger.

“The idea of this event was also to show that we have neither a capital problem nor any other at the moment,” Rothensteiner said. “I’m of the opinion that one should think about better structures when one doesn’t have to.”

Last year, Raiffeisen International’s consolidated profit after minorities dropped to €212 million ($286 million) from €982 million a year earlier as its provisioning for bad loans soared to €1.7 billion in 2009 from €780 million in 2008.

The RZB Group, meanwhile, achieved a consolidated profit after tax and minorities of €433 million in 2009, up from €48 million in 2008. Its provisions for bad loans was €2.2 billion last year.

The preliminary and unaudited results were presented at the news conference that was originally set for March.

“By minimizing parallel structures, synergies could be used and the governance of the whole group could be further improved,” Stepic said.

“The merged bank would also bring together the emerging markets business in Asia that up to now RZB AG has been doing on a very selective basis with Raiffeisen International’s business in Central and Eastern Europe.”