Profit fall at Russia's VTB underlines need for capital

MOSCOW Thu Sep 20, 2012 8:02am EDT

MOSCOW (Reuters) - Quarterly earnings at VTB (VTBR.MM), Russia's second-biggest bank, dropped 63 percent due to volatile financial markets and foreign exchange losses, underscoring the importance of its plan to issue new shares to bolster capital.

The state-controlled bank's capital base has been strained by acquisitions and lending growth, and chief executive Andrei Kostin said on Wednesday it was considering a $2 billion share sale next spring after the successful sale of a $5 billion stake in larger rival Sberbank (SBER.MM) this week.

"VTB needs capital, so it is logical that talk about a potential placement is resuming now," Renaissance analyst Svetlana Kovalskaya wrote in a research note.

VTB reported on Thursday a dip in its capital strength at mid-year, but said that including a subsequent perpetual Eurobond issue, its Tier 1 ratio - a key measure of capital strength - would have risen to 9.5 percent.

The state owns 75.5 percent of VTB but plans to cut its holding as part of a wider privatization drive.

A central bank official has said any share sale could be a mix of new stock and the state cutting back its holding.

Unlike for Sberbank, which by one estimate is the best performing large company stock in the world over the past decade after Apple (AAPL.O), investors who bought shares in VTB's $8 billion initial public offering in 2007 are still under water.

VTB's Moscow-traded shares fell 1.3 percent to 5.5 kopeks - also below the level at which the state sold a 10 percent stake in early 2011. Its London-traded global depository receipts (VTBRq.L) fell 2 percent to $3.45.

VTB reported a net profit of 10.3 billion roubles ($330 million) for the second quarter, down from 27.5 billion in the same period a year earlier and short of analysts' average forecast of 10.6 billion.

For the first half of the year as a whole, earnings fell 37 percent to 33.6 billion roubles.

VTB said its bottom line suffered in the first half from a 1.2-billion-rouble loss in its equity and security portfolios, which it attributed to volatile markets. The same time last year, it posted a net trading gain of 9.5 billion roubles.

It also took an 11.9-billion-rouble provisioning charge for impairment of debt financial instruments in the second quarter, larger than the year-earlier provision of 9.6 billion.

This included revaluing, writing down or writing off loans and advances to customers, investment securities held to maturity and credit-related commitments.

It also recorded foreign exchange translation losses for the three months of 11.3 billion roubles, larger than the 8.8 billion roubles recorded the same period a year ago. Expenses from non-banking activities and staff costs rose as well, according to a statement on the bank's website.

VTB expects a net profit of more than 100 billion roubles ($3.2 billion) this year, a forecast that Chief Financial Officer Herbert Moos reiterated.

The bank was recently accused of a "pattern of mismanagement and questionable practices" by a prominent Russian anti-corruption campaigner Alexei Navalny, a charge VTB strongly denied.

(Reporting by Megan Davies and Jason Bush; Editing by David Holmes and Mark Potter)

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