Erste Group set to raise at least 1.6 billion euros in cash by sale of new shares

Erste Group, the majority shareholder of BCR, is launching a public offering of shares today whereby it intends to raise at least 1.6 billion euros to increase its capital, given that BCR, too, might need additional capital to offset the deterioration of the financial results.
BCR, the biggest bank on the market posted 22 million euros in net profit in the third quarter for the entire financial group, over six times lower than in the same time in 2008, which reveals the impact of the financial crisis that is starting to become increasingly more visible in the balance sheets of banks.
Nine months into the year, BCR posted 166 million euros in net income, half of what it was a year ago, when the bank had collected more than 60 million euros for its stake in Asiban.
Erste posted a 4.8 million euro net loss from the retail and SME segment in Romania in the third quarter, compared with a net profit of almost 77 million euros in the same time in 2008, because of the increase in provisions for non-performing loans accumulated especially on the SME segment.
To consolidate its capital, Erste will sell new shares at a maximum price of 32 euros by November 17, which means it could get no more than 1.9 billion euros from the market. Individual investors in Romania that buy through BCR will get preferential allocation depending on the number of shares left after subscription rights have been exercised.
"We do not believe this crisis is over, although the peak has been reached most likely. We have hard times ahead of us and it remains to be seen whether we feel a dramatic decline in risk cost. We hope it will come, but we don't know when," said Andreas Treichl, CEO of Erste. He added the money raised from the market would not be used to repay the 1.2 billion euro aid Erste got from the Austrian Government but to further consolidate the capital.
The Erste Foundation, the main shareholder of the Austrian group, will not participate in the capital increase of the bank, as it already has one billion euros in debt. Spanish La Caixa group, which already owns 5.1% in Erste will subscribe in its place. As a result, the stake of the Foundation will go down from 31% to some 26.5%, while La Caixa's stake will go up to 10% and may even increase to 20% if Erste agrees.