ATLANTIK FT Czech Equity Daily: 30/10/09; Erste Bank

Index PX: 1,130 points (down 2.0 % d/d), volume: 3,156 mn CZK (178 mn USD)

Market comment:

As the PSE was closed on Wednesday it had to catch up the negative performance on global markets, though after the positive U.S. 3Q09 GDP figure the mood turned around and the sentiment improved with final index PX showing -2.0% d/d from -5.0% at the open. Most interesting trading was seen on Erste Bank where the title opened even below the close in Vienna i.e. at 656 CZK but during the day it returned back to 721 CZK. Komercni banka after morning decline below 3,500 CZK went back during the day and closed at 3,570 CZK. The biggest traded volume was made by CEZ (1.4 bn CZK) with -0.2% d/d performance where the return of investors was felt after a finished IPO of Polish PGE (energy company). NWR ended with -2.1% d/d and Telefonica closed at 430 CZK or down 0.7%.

Erste Bank: Neutral/Positive: LT: Sell. Target Price: 24.5 EUR.

The net profit of Erste Bank (EB) reached 720 mn EUR for the 9M of the year (down 51% y/y due to one off sale of insurance business last year), in line with our projection (716 mn EUR) and exceeded market expectation (683 mn EUR). Operating income increased by 7,8%, driven by the growth of interest income. The bank also managed to significantly reduce operating costs (-5,7%) as a result of headcount reduction (-3,1%) and some other cost cutting measures. The provisions to non-performing loans (NPL) reached 1,449 mn EUR (+141% y/y) when the increase of NPL in the loan portfolio has been significantly slowing down in 3Q (6.3% vs 4.7% at the end of 2008 and 5.9% in 1H09).

As expected, EB also announced a capital increase through the issuance of up to 60 mn new shares (19% of current outstanding shares) in order to increase the capital ratios of the bank. The offer period will last from 2 to 17 November 2009. Existing shareholders (record day: 30 October) will have the subscription rights at a ratio of 3 new shares for each 16 held. The maximum price will be 32 EUR. The new shares also have right to dividend from the 2009 profit. Erste will also substitute the previously planned issuance of hybrid capital to the government with the common shares.

Overall we see the result positive as the net profit exceeded market estimates, issuance of new shares was expected and the decision not to issue hybrid capital to the government will not increase financial costs and dependence on the state. Improved global sentiment after the release of GDP for 3Q09 in USA could also be supportive for today's trading.

cons., IFRS (mn EUR)

9M 2009

y/y

e AFT

e Market

Total operating revenues

5,657

7.8%

5,601

5,596

   Net interest income

3,841

7.5%

3,762

3,785

   Fees and commissions

1,313

-11.8%

1,342

1,327

   Trading result

503

172%

497

498

Total operating costs

-2,880

-5.7%

-2,928

-2,954

Provisions

-1,449

140.6%

-1,396

-1,438

Net profit after minorities

720

-50.8%

716

683

Source: Erste Bank, ATLANTIK FT.