UPDATE 3-VBI deal kick-starts Sberbank's expansion mission

Thu Sep 8, 2011 9:50am EDT

Related Topics

* VBI owners to get up to 645 mln euros, if it hits certain profit levels

* Sberbank is looking at expansion in Poland, Turkey

* Aims to earn over 5 pct of profit outside Russia by 2014 (Adds Sberbank comment on price)

By Michael Shields and Angelika Gruber

VIENNA, Sept 8 (Reuters) - Russia's Sberbank has clinched a deal to buy VBI, the eastern European arm of Austrian lender Oesterreichische Volksbanken (OTVVp.VI), for at least 585 million euros ($821 million), gaining a springboard for expansion in the region.

The deal caps the Russian juggernaut's drive to boost its presence in fast-growing markets outside the former Soviet Union and sets the stage for expansion in two more key markets: Poland and Turkey.

Chief Executive German Gref told a news conference that banking sector profits in central and eastern Europe were set to be double those in Russia by the end of the decade, making it a crucial market for Sberbank.

"We went into the European market not to pursue short-term goals and to make quick profits, but to be in the market for a long time, for decades," he said in the ornate hall of Vienna's former stock exchange building.

He reiterated he had his eye on Turkey and Poland as well, but said it was premature to speak about more takeovers.

"We plan to be present in Europe but at the moment we don't have large purchases on the agenda," he said.

There has been talk of takeover interest in Polish lenders Kredyt bank , owned by KBC Group's or Millennium, mainly owned by Banco Comercial Portugues .

"I can only add that we have not conducted any talks on the purchase of these banks. The press information here was not entirely correct," Gref said.

Sberbank, which aims to earn at least 5 percent of net profit from international operations by 2014, now has to integrate VBI, for which is will pay one times equity excluding the Romanian business that Volksbanken plans to revamp and sell.

Denis Bugrov, board member responsible for strategy, told Reuters that the basic price for VBI was set at 585 million euros with the right for its shareholders to receive up to 60 million euros in dividends for 2011.

"The price is 585 million euros, plus VBI shareholders have a right to get dividends for 2011 year of up to 60 million euros but only if VBI's capital does not fall from the current level after the payout," he told Reuters.

Excluding Romania -- its biggest business -- VBI made a first-half profit of 15.9 million euros.

Sberbank shares rose 0.8 percent by 1317 GMT in a flat Russian market.

Olga Belenkaya, an analyst with Sovlink, said the deal was in line with market expectations and Sberbank's strategy.

"Entering Eastern Europe's markets now, when its banking sector is not in a very sustainable position, has some risks. But given Sberbank's size I think it will be able to absorb these risks," she said.

What the market is really looking for is news on when a 7.6 percent stake in Sberbank will come onto the market in a secondary offering. Gref said no decision had been made on this while it awaited a window of opportunity.

In addition to the sale price, Sberbank will assume almost 2.5 billion euros of financing from VBI's owners. Oesterreichische Volksbanken will provide Sberbank with five-year funding of 500 million euros, the lender said.

Volksbanken has a 51 percent stake in VBI, while France's Banque Populaire Caisse d'Epargne and Germany's DZ Bank/WGZ Bank each own 24.5 percent.

Sberbank, whose assets of more than $310 billion account for a third of the Russian banking system, also operates in Kazakhstan, Belarus and Ukraine.

The VBI deal, which is expected to close by the end of the year, is Sberbank's second purchase this year after its $1 billion takeover of brokerage Troika Dialog.

The deal helps Volksbanken -- which failed a European bank stress test in July -- shore up its balance sheet as it seeks to repay Austrian state aid it got during the financial crisis.

The VBI sale would improve its Tier 1 capital ratio by about 2 percentage points and boost its equity capital by almost 300 million euros, Volksbanken said.

The Vienna-based lender said last month it was unlikely to pay a 2011 dividend, raising prospects it could be the third Austrian bank to be nationalised, although Austrian officials have said they have limited appetite for this.

"Today we are losing a baby, a baby that we built up over 20 years. But ... we are giving the baby to a bank that will push its further development with full energy, and for that I am very grateful," Volksbanken head Gerald Wenzel told reporters.

Societe Generale and J.P. Morgan acted as financial advisers to Sberbank, while Ithuba Capital worked for sellers VBAG and DZ Bank/WGZ Bank. Deutsche Bank advised BPCE. ($1 = 0.712 Euros) (Additional reporting by Katya Golubkova and Oksana Kobzeva in Moscow; Editing by David Hulmes and Jon Loades-Carter)

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