March 13, 2014 / 11:51 AM / in 4 years

UPDATE 1-BAWAG PSK repays state aid, says not for sale

* BAWAG PSK repaying 350 million euros in Austrian state aid

* CEO says no sale process under way despite rumours

* Cerberus, GoldenTree inject more equity into bank

* Net profit in 2013 more than doubles to 229 mln euros

By Michael Shields

VIENNA, March 13 (Reuters) - Austrian lender BAWAG PSK is repaying all its state aid after strengthening its balance sheet and more than doubling 2013 profits, beautifying the bank for a potential sale that Chief Executive Byron Haynes insisted was not imminent.

BAWAG, owned by U.S. investor Cerberus Capital Management , is one of six Austrian banks to come under direct European Central Bank supervision after stress tests this year, a review the Vienna-based lender said it was eagerly awaiting.

As a sign of confidence, the bank will repay on Friday the remaining 350 million euros ($487 million) in non-voting capital it got from the state to ride out the financial crisis, it said on Thursday. It had repaid 200 million last year.

Its balance sheet was beefed up last year by a 200 million euro share issue that gave U.S. asset manager GoldenTree a stake of nearly 40 percent. Shareholders injected another 125 million euros this week, BAWAG said.

Haynes told reporters that was a sign of faith by its two big shareholders, who he said contributed equally to the capital increase. He dismissed persistent speculation that Cerberus was readying to exit the BAWAG investment it made in 2007.

“Those are only rumours. There is no sales process out there and our shareholders continue to be very supportive to this institution,” he said.

BAWAG is embroiled in a legal fight with the Austrian city of Linz over a swap transaction from 2007. It reiterated it expected to win the case but said it was open to a settlement and would pursue the case through legal appeals if needed.

BAWAG had a fully-loaded Basel III core equity tier 1 ratio of 9.4 percent of risk-weighted assets at the end of 2013 - easily surpassing minimum requirements and its own 9 percent goal - and said it aimed to boost that above 10 percent in 2014.


BAWAG has slashed its balance sheet in a drive to cut risk and non-core assets while boosting capital efficiency. Total assets have fallen 11 percent since 2011 to 36.4 billion at end-2013.

Despite higher restructuring expenses, 2013 net profit more than doubled to 229 million euros thanks to sharp gains on financial instruments, a 5.1 percent drop in core operating expenses and a decline in risk costs of more than a third.

Its non-performing loan ratio fell to 3.4 percent last year.

BAWAG targeted a return on equity above 10 percent this year, a rise in its Austrian retail lending market share to above 8.5 percent from 8 in 2013, and a cut in core operating expenses to below 500 million euros from 574 million in 2013.

BAWAG’s partnership with Austrian Post gives it a network of 477 branches across the country to complement its online products.

Unlike rivals such as Erste Group, Raiffeisen Bank International and UniCredit Bank Austria, BAWAG is exiting central and eastern Europe to focus on stabler economies in Austria, Germany, Britain and western Europe.

“We look west, they look east,” new finance chief Anas Abuzaakouk said, saying the macroeconomic environment in western Europe made it more attractive than emerging markets to the east that Austrian rivals see as offering more growth potential.

BAWAG’s CEE loan book has shrunk to 700 million euros, less than 2 percent of total assets, and is headed even lower.

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