* Q2 net loss after minorities 1.03 bln eur (poll 1.11 bln)
* Reiterates outlook for 2014 and 2015
* Reiterates it does not plan 2014 dividend
* Shares top gainers among European banks
(Recasts with comments from analysts call, news conference)
By Michael Shields
VIENNA, July 31 Austria's Erste Group Bank
said on Thursday that it has sought to clean up all
its balance sheet problems this year but cannot exclude further
political obstacles in its central and eastern European markets.
Emerging Europe's third-biggest lender bit the bullet by
writing down businesses in Romania and Croatia and setting aside
an initial 130 million euros for a Hungarian law forcing banks
to compensate customers for mispriced loans, triggering a 1.03
billion euro ($1.38 billion) second-quarter loss on its way to
record red ink in 2014.
More pain from Romania and Hungary lies ahead in the second
half, Chief Executive Andreas Treichl told reporters, but "I
think it is fair to say we did everything within our power and
everything within our knowledge to make sure that as of 2015 we
will not have to deal with legacy issues any more.
"What I can say (is) there will be no nasty surprises from
our part but I cannot exclude that there might be nasty
surprises in certain countries or in the region due to political
decisions or politial developments."
Erste's shares rose, although Treichl said he could not yet
gauge how much business might suffer from a prolonged and
deepening crisis in Ukraine and Russia over Moscow's support for
"For the moment (the impact) is relatively subdued but if
the crisis accelerates of course we will probably have to revise
forecasts all over Europe in 2015 and 2016," he said, hoping to
avoid a spiral of sanctions between Russia and the West.
Erste sold its Ukraine business last year but still has 355
million euros in exposure to Russia and Ukraine, officials said.
Erste reiterated its outlook after warning on July 3 that
fresh hits from Hungary and Romania would push it to a record
2014 net loss of up to 1.6 billion euros.
Analysts polled by Reuters had on average expected it to
post a quarterly net loss of 1.11 billion euros.
Eastern Europe generated fat profit margins for banks for
years after the end of communism but the global financial crisis
has revealed soured loans across the region.
UPBEAT ON CAPITAL
Shares in Erste rose 1.1 percent to 19.695 euros by 1245
GMT, making them the only gainers in a European banking index
that fell 1.8 percent.
"The stock sold off heavily after the recent profit warning
and some value has emerged. However, we believe the stock will
struggle to outperform the sector given a lacklustre outlook for
growth in its core regions," Kepler Cheuvreux analysts wrote.
One-off costs from Hungary and Romania hit results by 1.25
billion euros in the first half. Erste added 80 million euros in
risk provisions in Romania in the second quarter and wrote down
intangible assets at its BCR unit there by 854 million euros.
Erste said "a significant proportion" of risk costs in
Romania resulting from the sale of non-performing loans would
arise only in the second half.
It wrote down the entire 102 million euros in goodwill
linked to its Croatia business and what it called other minor
In Hungary, it was braced for another 170 million euro
charge in the second half stemming from the consumer loan law.
This excluded more costs that could arise from any forced
conversion of foreign-currency loans into forint loans.
Treichl said it was "extremely unlikely" that hits from
forex loans would drive the 2014 loss above 1.6 billion euros.
He reiterated that Erste planned no dividend on 2014 results.
Treichl insisted the quality of Erste's loan portfolio was
improving and noted that its common equity tier 1 ratio improved
to 11.7 percent from 11.1 percent at the end of March.
That equates to a 10.8 percent fully loaded core capital
ratio under Basel III standards, Erste said, making it more
confident it will stay above the 10 percent minimum it agreed
with regulators even should it take another Hungarian loan hit.
($1 = 0.7471 Euros)
(Reporting by Michael Shields; editing by Jason Neely/Ruth