It’s deja-vu all over again as Yogi Berra would say….but if you’re a CFO of Austrian bank Raiffeisen International you’d say “Despite ongoing speculation, I want to reassure the market that no capital increase is planned”….
The recently deceased Mandy Rice Davies might say “He would say that, wouldn’t he” and WealthiFi would say the bond market is slightly ahead of Raiffeisen’s CFO. The bank’s problems include the following….
1. A complicated co-operative ownership structure; imagine fairly sclerotic decision making.
2. A share price which has fallen 50% since September 2014 and 20%+ in January alone.
3. Equity is currently valued at just under €3 billion
4. A huge proportion of its profits(historic) and assets are in Russia and Ukraine; Russian exposure alone is more than 250% of 2014 tangible book value of the group.
5. Its Swiss Franc lending exposure in Eastern Europe is estimated at €4.4 or circa 50% of tangible book value.
6. So far this year the management have admitted that goodwill on its Russian franchise will have to be written down by……. wait for it….€148m. That is just nuts and the bond market knows it.
Check out the pricing of any junior debt instruments issued by the bank and you will find they are trading as low as 0.50 cents in the euro. Yip, they are pricing losses of capital on the bonds. Now go back and look at that market cap, falling but still indicating €2.9 billion of value. In standard capital structures the equity holders take the pain first but in this instance the bond market is already pricing equity wipeout(vs €2.9 billion equity ‘value’ in the market) and then further capital losses for debt holders.
Equity analysts and investors, as always, rely on “contact with management” despite not a single analyst or investor on the planet ever being told by banking executives at these prized meetings/contacts that “Yep, the bank is buggered and our share price is wrong”.
Watch closely as management do the banker thing and drip feed capital erosion via regular visits to the confessional. And for more graphic illustration of RISK, check out ActivateAlpha’s RiskTraQ graphic plotting the increasing risks of Raiffeisen….
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