BRE Bank is due to report its 4Q05 results on February 2. We expect the bank to deliver a net attributable profit of PLN60.9m, up 9.0% q/q. There is no consensus estimate available yet. The increase versus last quarter is mainly expected to come as a result of lower provisioning and expected one-off gains.
Net interest income is expected to decrease slightly by 1.1% q/q to PLN148.8m in 4Q05. While thus far this year there has been little discernable margin pressure from falling interest rates, we would nonetheless point to the potential impact of a 85bp in 3m-WIBOR during 2H05.
Net fee income is expected to decrease by 11.6% q/q to PLN 100.5m in 4Q05,as the securities markets volumes declined in the absence of any privatisation deals (such as PGNiG in 3Q05 or Lotos in 2Q05). Moreover, Skarbiec AM, BRE Bank’s mutual fund subsidiary has been losing market share in AUM, registering growth rates of 7% q/q and 22% y/y versus market growth of 14.9% q/q and 60.5% y/y.
Net trading income is expected to jump 48.6% q/q to PLN 100.4m in 4Q05, supported by one-off asset disposals. BRE Bank is likely to book a gain of some PLN 34.8m on the sale of Novitus. While revenues from the transaction of placing the company on the WSE equalled PLN 47.9m, it should be noted that BRE Bank previously expected to generate revenues of some PLN 60-80m on the sale.
Operating costs are expected to grow slightly by 1.4% q/q to PLN 220.6m in 4Q05. Despite ongoing investments in its Multibank and mBank retail network, with a combined 34 outlets (including branches, mKiosks, and partnership outlets) opened in 9m05, operating costs (excluding one-off items) should have been fairly well contained.
Other operating costs are expected to jump 85.9% q/q to PLN 39.5m in 4Q05, due to a write-down of PLN 26.5m related to the conditional sale of Skarbiec pension fund at a minimum price of PLN 315m to PZU. Here, we would note firstly that the maximum price of the transaction (which will be set according to performance) is PLN 365m and secondly that regulatory approval has yet to be obtained and looks unlikely. Finally, its worth noting that the net impact of one-offs in the quarter (Novitus – Skarbiec) is a net gain of some PLN 8.3m.
• Net provisioning requirements are expected to fall 25% q/q to PLN 30.2m in 4Q05, which would equate to some 74bp over of average gross loans, a more-or-less normalised level. However, it should be underlined that the bank’s provisioning requirements in 1H05 were unsustainably low and that prospects for a rise in provisioning requirements in 2006 weigh on projected earnings growth.
Regarding the acquisition of 100% of commercial mortgage lender BRE Bank Hipoteczny from Commerzbank for PLN 174.5m, announced at the beginning of the year, we plan to include it in our forecast revisions following the release of 4Q05 results. Note that while BRE Bank previously sold it to Commerzbank in December 2004 for PLN 165.6m (book value). Whilst BBH reported a 2005 net profit of PLN 21.8m, up 104.1% y/y, detailed P&L data has not been provided as of yet, making earnings quality difficult to assess.