Hofstaetter_Valentin
Mar.
24
2014

We stay – in Ukraine, in Russia, in Hungary, says the strategist of Raiffeisen International

The leading capital market and Eastern European strategist of Raiffeisen International financial institution made it clear that they were not afraid of the Ukrainian-Russian events  and wanted to stay there as one of the main financial institutions. Dr. Valentin Hofstätter said to alapblog.hu that they expected an agreement between Ukraine, the Western countries, and the financial institutions about a 25-35-billion-euro support.

This will improve the position of the Austrian banks, including Raiffeisen, even if losses from recapitalizing their subsidiaries are inevitable. Raiffeisen would undertake these costs because experience has taught Austrian banks that it is worth staying in the Eastern-European markets. Hungary is no exception. Thus, Raiffeisen would only move out of the region, if the local governments nationalized it. Whether the worst scenario will occur – that is that there will be an open war between Ukraine and Russia – is another question. But this is something they do not even want to think about.

Zentai Péter: What is the plan? Would you recapitalize you Ukrainian bank at any cost, if the economic and political developments remain so dramatic?

Valentin Hofstätter: In the light if past experience, we suppose we would. The parent bank in Vienna would make the sacrifice, no matter what it takes. Remember, a few years ago, we already had to bail out the Ukrainian banks with hundreds of millions of euros. We are not planning to change this attitude as it is crucial for us – and other Austrian financial institutions – to maintain our position in the Eastern European countries. Most likely, we will recapitalize our subsidiary so that it would be able to start lending again and help the business sector recover. Obviously, the local government has to take part in this process, as well. Usually, the foreign parent banks and the local governments join forces to remedy the situation.

These actions, however, harm the parent bank – in this case, Raiffeisen – seriously on the stock market. Your stock price has fallen significantly, too. How troublesome is that?

With recapitalization come large losses; thus, the stock price drops. It actually happened a week ago and our international stock suffered considerably. Later, the stock price will slowly but steadily increase. The more likely it is that the IMF, the EU and the United States provide financial support, the faster it improves.

Nevertheless, it seems that the worst has already passed. Our losses are still less than what we would have if we have up Ukraine.

Speaking of historic experience and the current situation of the country – Russia’s military occupation of Crimea and the uncertainties involved –,  what is your opinion about the chances of financial, economic recovery and the future of Austrian banks, especially, of  Raiffeisen, in Ukraine?

An open war between Russia and Ukraine would be a disaster in all respects. The situation of Crimea needs to be settled politically, independently from the economic recovery. In this sense, considering all the probable scenarios, I am rather optimistic. The more worrying the political situation is, the more the West feels morally obliged to come up with funding for Ukraine. In the next two weeks, we expect an agreement of a 25-35-billion-dollar support from the Western countries, including the bilateral funding from the U.S. and an aid package from the IMF and the European Union.  At Raiffeisen International, we assume that they will act swiftly as we cannot allow this situation to deteriorate even more.

How much money do you have to put into the Ukrainian Raiffeisen?

I can only tell it later, in months. No one knows it for sure. Ukraine already has a tremendous financial crisis with huge currency devaluation and non-performing loans of 50 percent of all lending. The foreign capital injection aims to stop the recession and stimulate the economy. This also helps us as the size of non-performing loans would decrease.

All in all, whole Eastern Europe might become problematic given the recent course of events in Ukraine, which put the Austrian banks to risk. Do you agree?

Due to large geographic diversification, Austrian banks were able to book a profit in total. In Poland, in the Czech Republic, in Slovakia, and in Russia, we have achieved good results and expect this trend to continue. If the Ukrainian crisis does not spread – which we really hope is not going to happen –, the financial sector will not get into trouble. In Ukraine, Austrian banks suffered losses and recapitalized their subsidiaries earlier. The definitive results remain positive.

But now, foreign capital is leaving Russia, which really bleeds the Austrian banks operating there.

We have always earned lots of money in Russia. In order to understand the situation, we need to realize that Russia is threatened by a recession, as well. The recession, the economic downturn itself – caused by the business cycle – is not a problem for us as a bank. We do not own Russian corporate stocks that suffer large drops, thus, we are not directly affected by the tumbling stock market. However, the fall in stock prices reflect that more and more companies might go bankrupt – and this will have a direct and indirect impact on our profits. The lasting and serious problem would be presented by an open war between Ukraine and Russia, not just a recession.

As a strategist, you don’t even consider leaving Russia, Ukraine, or other Central Eastern European countries? In Hungary, you even received an offer to buy your unit.

If the local government does not force us to leave, does not nationalize, we will stay. Definitely. Even in 1997 and 1988, when Russia faced one of its most severe economic crises, we did not think about leaving. Both Russia and Ukraine are large economies, they are able to heal. We also expect Russia to recover from the current crisis quickly.

A war is a whole different story and we do not even want to include that factor in our strategy.

I am personally concerned about the increasing signs of war in the region, more specifically, the chaos and the unpredictability of the politics. Sanctions and anti-sanctions between the East and the West follow each other with unforeseeable consequences. It is foolish to ignore this.

However, we still stick to our best strategy: we should not give up our Eastern European position because we found that economies recover and in the end, those foreign banks benefitted the most that did not leave. For the same reasons, we have no intentions of moving out of Hungary. This should not happen, unless we are kicked out of the country. We think that each of the Eastern European economies we have been operating in the last two or three decades needs the expertise, the capital, and the local knowledge of the Austrian banks, significantly, Raiffeisen Bank International.