July 31, 2014 / 6:11 AM / in 3 years

UPDATE 3-Erste Group aims to turn page after record 2014 loss

* 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 (Reuters) - 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 separatist rebels.

“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.


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 participations.

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 Pitchford

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