Sanctions Outweigh Profit as Austrian Bank Pays for Russia Role

(Bloomberg) -- As far as Russia is concerned, investors in Raiffeisen International AG have to take the good news with the bad.

Raiffeisen, which gets its biggest share of profit from Russia, dropped the most since May 29 amid concerns that the U.S. may impose unspecified additional sanctions on the country. That overshadowed second-quarter profit that beat estimates as the bank said provisions for risky debt would fall further this year.

"The share price reaction is clearly due to the sanctions threat," said Tobias Lukesch, an analyst with Kepler Cheuvreux in Frankfurt. “Fundamentally though, the bank is on a good track.”

Raiffeisen’s dependence on Russia increased even further recently with the sale of its Polish unit. However, the bank plans to use some of the proceeds from the disposal to invest in central European markets such as the Czech Republic, Slovakia, Romania and Bulgaria, possibly through acquisitions, Chief Executive Officer Johann Strobl has said.

On Wednesday, the U.S. joined a group of countries moving to punish President Vladimir Putin’s government for the March nerve-agent attack on former double agent Sergei Skripal and his daughter in the U.K.

Raiffeisen fell as much as 6.1 percent in Vienna trading and was down 4.5 percent at 26.81 euros as of 11:18 a.m. The stock was the third-worst performer in the Stoxx 600 index. It’s down 12 percent this year, giving the company a market value of 8.76 billion euros ($10 billion).

Russia Earnings

Profit in Russia fell to 101 million euros, down from 123 million euros a year ago. Overall, the bank cut provisions in the country in the first half and Russia’s profit contribution was little changed in that period.

Raiffeisen reported group net income of 357 million euros compared with an average estimate of 264 million euros.

Raiffeisen and its eastern European peers, Erste Group Bank AG and UniCredit SpA, are growing in the former communist part of Europe, where economies are booming and some central banks have started raising interest rates. The economic tailwinds have boosted credit demand and asset quality; revenue is rising, and loan loss provisions have declined, or even been written back.

"We see the positive trend in risk costs continue in the second half of the year," Strobl said in a statement. "We have therefore adjusted our outlook" from comparable full-year provisions to lower provisions.

The percentage of non-performing loans for the group fell to 4.8 percent compared with 5.7 percent at the end of 2017. The "positive development was driven by a good macroeconomic environment with regard to inflows and the enabling of successful recoveries," Raiffeisen said.

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