Raiffeisen Junior Debt Signaling Distress as Currency Woes Mount
(Bloomberg) — Raiffeisen Bank International AG’s junior bonds slumped to levels typically viewed as distressed after gains in the Swiss franc added to woes triggered by the tumble in the Russian and Ukrainian currencies.
Subordinated bonds sold by the Vienna-based lender slid as low as 63.4 cents on the euro, with yields of as much as 10 percent, after trading at 91 cents at the start of December, according to data compiled by Bloomberg.
“When bonds get to 60, 70 cents it’s fair to say it’s a sign of distress,” said Robert Montague, who helps oversee about $8 billion as a senior credit analyst at ECM Asset Management in London.
Investors are concerned because European Union rules forcing losses on junior bondholders before banks can get state aid came into force in Austria on Jan. 1. The government has injected about 8.1 billion euros into three banks in the past six years and guarantees on bonds of stricken Hypo Alpe Adria Bank were revoked to avoid a taxpayer-funded bailout.
Raiffeisen’s junior bondholders are alarmed that Switzerland’s decision to stop holding down the value of the franc will trigger losses as eastern European customers struggle to repay loans in the currency. The lender, which has a larger part of its capital at risk in the region than other foreign lenders, is also suffering from the impact of conflict in Ukraine, as well as sanctions on Russia and the falling oil price.
Moves in bond prices are “over-exaggerated,” according to Susanne Langer, head of investor relations at Raiffeisen in Vienna. She declined to comment on “market research” about bond prices.
Polish Mortgages
Raiffeisen had a total of 4.3 billion euros of Swiss franc loans outstanding as of September 2014, according to estimates by Moody’s Investors Service. The largest part of these are in Poland, where the franc has appreciated 17 percent against the zloty since Jan. 14, threatening to push up defaults on the bank’s 2.9 billion euros of mortgages in the Swiss currency.
“There’s a lot of people worried about the bank’s Swiss- franc mortgages in eastern Europe,” said Gregory Turnbull Schwartz, who helps oversee the equivalent of about $82 billion at Kames Capital in Edinburgh and doesn’t hold Raiffeisen bonds.
Raiffeisen said Jan. 15 that it can’t yet forecast the effects of the appreciation of the franc on its asset quality.
Raiffeisen is considering selling Raiffeisen Bank Polska SA, its second-biggest unit after Russia, two people with knowledge of the matter said last month. The lender is the third-biggest foreign bank in Russia after Societe Generale SA and UniCredit SpA.
“The structural issue with Raiffeisen is its over-reliance on Russia,” said Eleni Papoula, an analyst at Berenberg Bank in London. “The Russian business will most likley contribute less to group earnings. An even more important issue is the impact of the depreciating ruble on its capital.”
To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Boris Groendahl in Vienna at bgroendahl@bloomberg.net To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan
