VBI deal kicks off Sberbank’s European expansion

The international operations of the only Austrian bank which failed the most recent stress test on financial institutes in Europe have been taken over by Russia’s biggest bank.

The contract between Volksbank AG (ÖVAG) and Sberbank was signed in Vienna yesterday (Thurs). ÖVAG and Sberbank agreed on a sale of Volksbank International (VBI) already in July. The deal was made public just hours before the European Banking Authority (EBA) announced ÖVAG did not pass its most recent check on whether the continent’s biggest banks would sustain an extraordinary and unforeseeable decline of the economy.

Sberbank agreed to transfer 585 million Euros for all but one of VBI’s nine departments. The struggling Romanian branch is the only sector to stay with ÖVAG. The Viennese institute plans to sell VBI Romania – which is currently being restructured – in two to three years. Sberbank agreed with ÖVAG it would pay another 60 million Euros depending on the performances of the various finance institutes included in the deal.

The whole VBI group has almost 4,000 employees in 300 branches. Its departments Serbia, the Czech Republic and Ukraine did best in recent months as far as earnings and profits are concerned. VBI also does business in Hungary, Croatia, Slovenia, Bosnia and Herzegovina and Slovakia.

ÖVAG said yesterday the sale of eight of its international representations would boost its equity and create positive cash flow. The bank claimed it would have passed the stress test in July under today’s circumstances. Sberbank made clear it considered the deal as the start of its expansion into Europe. Especially Turkey and Poland are envisaged as future market places for the powerful Moscow-based bank, according to Austrian papers.

VBI suffered a loss of 21.8 million last year. It achieved a net profit of 14.8 million Euros in the first six months of this year. ÖVAG emphasised yesterday its Romanian affiliate nearly managed to get back in the black in the first half of 2011 after having experienced an “extremely difficult year 2010.”

ÖVAG is expected to continue its company-internal regrouping process. The bank received around one billion Euros of so-called participation capital by the state in the past three years. The payment was agreed upon as a measure to help the bank through the economic turmoil kicked off by the collapse of US investment bank Lehman Brothers in September 2008. Erste Group Bank AG (Erste Bank), Raiffeisen Zentralbank (RZB) and BAWAG PSK (BAWAG) have also been financially supported by the Republic of Austria. ÖVAG has so far been unable to pay any interest on the money it received. The bank plans to return around 300 million Euros of the state aid later this year.

The condition of Erste Bank and RZB’s international business affiliate, Raiffeisen Bank International (RBI), was also investigated in the most recent European bank stress test while BAWAG’s equity and capital ratio was not checked by EBA. Erste Bank and RBI did well in the examination. The bosses of both banks expressed pleasure about the news that they reached, as Austrian National Bank (OeNB) Governor Ewald Nowotny described it, “upper midfield” positions among all of the 91 institutes which were tested on their crisis resistance. Nowotny suggested the financial institutes should now try to improve their equity ratios further.