Bank Austria Creditanstalt (BACA) reported yesterday that it is taking legal steps against Erste Bank in respect of the establishment of the Gross-Guarantee System among Erste and Austrian regional saving banks last year. According to BACA, the system violates European cartel laws and the inclusion of participating savings banks in the Erste Bank Group's capital violates the Austrian banking act and EU legislation.
We consider the news as largely neutral at the moment. While the cross-guarantee system improves the market recognition of the Erste Bank Group (including regional saving banks), the guarantee provided by Erste to local savings banks increases Erste’s possible liabilities. Moreover, the impact of the saving banks’ consolidation on our valuation of Erste is only marginal given slight differences in earnings before and after their consolidation.
Separately, Erste reiterated yesterday that it may look for acquisitions in Bulgaria and Romania after 2005; Romania’s state-owned CAC was mentioned as a possible target. (Bloomberg). Neutral.
Jan Hájek