UPDATE 2-Austria's Volksbanken warns of further losses this year

Fri Nov 25, 2011 7:26am EST

Related Topics

* Nine-month loss 689 mln eur vs 0.3 mln profit year ago

* Says 2011 group loss to be 10 pct wider than forecast last month

* Says will exceed regulatory capital requirements at year end

* Says hitting 9 pct core capital ratio by mid-2012 would be challenge (Adds details and background)

By Michael Shields

VIENNA, Nov 25 (Reuters) - Oesterreichische Volksbanken AG (VBAG), the Austrian bank that failed this year's European stress test, will post a loss this year which is at least 10 percent more than forecast last month, it said on Friday.

The country's fourth-biggest bank blamed volatile markets and poor economic conditions in some countries for the latest profit warning.

In the first nine months of the year it said it made a loss of 689 million euros ($918 million) but said its capital adequacy ratios would still exceed regulatory requirements by the end of the year.

It did not say how much capital it would need to meet the new 9 percent core capital ratio which the European Banking Authority (EBA) wants banks to have.

A bank spokesman said it was still unclear whether regulators would require Volksbanken to reach that level given that it is in the midst of a sweeping revamp that aims to shrink it back to financial health.

The capital shortfall was 972 million euros based on first-half data.

"The EBA has already stated that the amount of VBAG's capital requirement is to be understood as a pro forma calculation, as VBAG is in the middle of a restructuring programme," it said in a statement.

"However, it will be a challenge for VBAG should it be obligated to achieve the temporary capital cushion of 9 percent by June 2012. In order to keep the additional equity requirement as low as possible, we are working on reducing risk-weighted assets as quickly as possible."

Its own internal calculation of ratios according to EBA methodology show a core capital ratio of 5.5 percent, it said.

Its illiquid participation certificates did not trade by midday.

VBI SALE ON TRACK

Vienna-based Volksbanken is in the process of forming a mutual liability association with its main regional bank shareholders to shore up its balance sheet and allow it to avoid more state aid.

It got 1 billion euros in non-voting state capital during the financial crisis and has been unable to repay a 300 million-euro tranche due this year.

That gives Austria the right to convert aid into equity and nationalise a third bank, a step Finance Minister Maria Fekter has said she would prefer not to take.

Volksbanken said last month it expected a 2011 consolidated loss of 500-750 million euros under IFRS accounting standards.

"The range announced on 13 October for the loss in the consolidated financial statements under IFRS will increase by at least 10 percent," it said on Friday.

It cited economic developments in Romania and Hungary as well as the measures adopted by the European Union to stabilise the situation in Greece as having a negative impact on results.

Volksbanken has been trying to use asset sales to shore up its balance sheet and comply with Basel III capital adequacy rules.

But it received less than it wanted for selling its VBI Eastern European arm to Russia's Sberbank and has been unable so far to sell its minority stake in peer Raiffeisen Zentralbank as planned.

The spokesman said Volksbanken still expected the sale of VBI to Sberbank to close by the end of the year and at the agreed price of at least 585 million euros.

Sberbank has sought to push the price down, a source close to the situation said, which could force Volksbanken to clean up some of VBI's problem spots to get the full price.

Volksbanken's quarterly report showed a nine-month loss of 62.6 million euros from "the disposal group", which primarily represents VBI, the spokesman said.

Regional banks own 60.8 percent of Volksbanken. Germany's DZ Bank Group owns 23.4 percent, Victoria Group 9.4 percent and Raiffeisen Zentralbank 5.7 percent. ($1=0.7506 euros) (Editing by Greg Mahlich)

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