* Sees 2010 net loss of 700-800 mln euros
* To delay repayment of state capital, skip dividend
* Shares fall more than 14 pct
By Michael Shields and Sylvia Westall
VIENNA, Oct 10 East European lender Erste Group
Bank warned on Monday it would make a net loss this
year of up to 800 million euros ($1 billion) and not pay a
dividend after taking hits on its foreign currency loans in
Hungary and euro zone sovereign debt.
The Austrian bank's shares were down more than 14 percent at
17.75 euros by 0850 GMT, when the Stoxx 600 Europe banking
sector index was down less than 0.7 percent.
"This is clearly disappointing news. In our view, today's
announcement is likely to trigger a cycle of ratings downgrades
and renew concerns over capital in the light of worsening
operation environment in eastern Europe," GFI Research said.
The Austrian lender scaled back and marked down to market
values nearly all its exposure to the sovereign debt of
struggling euro zone countries, changed the way it handles
credit default swaps, and took big writedowns in Hungary and
The kitchen sink approach and volatility on financial
markets means Erste will delay for at least a year repaying 1.2
billion euros in non-voting capital which it got from Austria
during the global banking crisis and skip a 2011 dividend, it
said in a statement.
The steps will not trigger demand for more capital at group
level, it said.
Due to a "continued strong underlying operating
profitability" its core tier 1 capital solvency ratio was set to
end 2011 at 9.2 percent of assets, the same level as a year
The market had expected a 2011 net profit of 967 million
euros and a dividend of 70 cents per share, according to Thomson
Erste cut its sovereign exposure to Greece, Portugal, Spain,
Ireland and Italy to 0.6 billion euros as of the end of
September and marked 95 percent of this down to market value
levels. Its combined exposure to Greece and Portugal was only 10
However, Erste Bank will suffer a 500 million-euro ($675
million) loss at Hungarian unit, which will now get about 600
million euros of new equity, following the local government's
move to let its domestic borrowers repay their foreign-currency
loans at below market rates.
It will write down its entire 312 million euros in
Hungary-related goodwill and boost risk provisions there by 450
million even while fighting the new law, it said.
Austrian peer Raiffeisen Bank International also
plans to inject capital into its Hungarian unit as a result of
the controversial law, its finance chief was quoted as saying
Raiffeisen, whose shares fell more than 10 percent, had no
immediate comment on Erste's moves.
In Romania Erste said a slower than expected economic
recovery meant that it would have a 700 million euro pretax
writedown of goodwill.