While most people have their attention tuned to the spectacle over at AIG, financial institutions in Europe are having their own difficulties. In the last day, I have seen multiple news stories of European banks looking for ways to raise capital in order to shore up their weakening balance sheets. Let me focus on three stories in particular: Nordea, Bank Austria and HVB.
This story about Nordea comes via the Danish paper Berlingske Tidene. Below is my translation (note my highlights):
On Friday Nordea will offer 1,430,059,525 shares to existing shareholders, with the drawing taking place from 20 March to 3 April. The price of a stock is set at 13.5 dollars – less than half of Monday’s closing price of 29.4 dollars per share.
A rights issue has put the share price under pressure, because more shares dilute the value of the existing. But the dilution already happened last week, according to Nordea, when the conditions for drawing the right came out. Nevertheless, there may well be a moderate pressure on the stock price for a few days yet.
Existing shareholders who do not want to buy more Nordea shares can sell subscription rights. It requires 20 warrants to be able to buy a Nordea share.
On 17 April, Nordea will publish the final breakdown of who has bought how many shares.
My take on this news is that Nordea, weakened by exposure to loan losses in the Baltics, is a forced seller of shares. They need the capital because a tsunami of losses is about to hit shore and they want to have adequate capital with which to resist the wave. These maneuvers will add nearly 23 million kroner of capital to Nordea’s capital base (over 3 billion USD at an exchange rate of 6.72 NOK/USD).
Next up is Bank Austria. They have the same problem. Huge expected exposure to Eastern Europe, problems in Ukraine being a big factor (333 million euros in writedowns). But rather than try and issue shares, Bank Austria is going directly to the government to get bailout funds. Below is a translation of a Kurier article:
Bank Austria may apply for a maximum of 2.7 billion euros in state aid. With this amount, the equity participation of the Republic of Austria for the bank reaches its cap as measured by balance sheet ratios. To bring the government’s return to 8 per cent – it will be exclusively ‘participation’ capital – the bank will need a participation of 30 percent “private” capital. Erich Hampel, the bank boss, is convinced that this will succeed.
When UniCredit CEO Alessandro Profumo spoke of the 2.7 billion euros, which Bank Austria, the business responsible for Eastern Europe, could receive from the Austrian government, Hampel only wanted to address a sum which was theoretically possible in state aid — which when weighted at 2 percent of risk assetsworks out arithmetically to 2.7 billion euros, accoring to his company.
Why is Bank Austria getting money from the government? Because UniCredit, its parent, is hemmoraghing losses. Just today, the German subsidiary HVB Group announced a loss of nearly 700 million euros due to writedowns due to exposure to… you guessed it, Eastern Europe. As a result, UniCredit needs cash from both the Austrian and Italian governments. The FT explains:
UniCredit, one of Italy’s top two banks, is to seek up to €4bn in state aid, joining a growing list of European banking groups turning to governments to boost their capital base as they grapple with the global financial crisis.
The bank, which has expanded into central and eastern Europe and as far as Kazakhstan in the past decade, said on Wednesday it would ask the Italian and Austrian governments for the cash.
Austria is already in talks about investing in Raiffeisen, the third largest Austrian bank, and Italy has approved a €12bn scheme that would see the state buying bonds issued by Italian banks.
UniCredit, which by some measures is the biggest lender in central and eastern Europe, announced the move as it reported 2008 annual results that were ahead of market expectations.
Results ahead or not, given UniCredit’s outsized exposure to Eastern Europe – a subject of much speculation – I have a feeling that the UniCredit story will start to become a front page item soon enough. Nordea may escape that fate. Of course, all of this is wholly predictable.
1,5 milliarder nye Nordea-aktier på fredag – Berlingske Tidene
Here We Go Time Draws Near With Unicredit – Edward Hugh
UniCredit’s HVB Has EU671 Million Loss on Writedowns – Bloomberg.com
UniCredit seeks €4bn aid – FT.com
Bank Austria mit 1,1 Milliarden Gewinn – Standard Austria