In an interview yesterday, KB CEO Radovan Vavra said that the government would need provide CZK 20 bil. in guarantees to ensure the successful privatization of the bank. Twenty billion CZK seems like a nice number for the bank, but a government decision will not be made until the second half of August, based on the results of a pre-privatization audit. Such talk of state guarantees could nonetheless help the stock in the meantime, particularly since the government does appear ready and willing to provide more help so that is selling a “clean” bank.
Vavra also said that, over the next two years, KB would use all of its operating profits to clean its loan portfolio (i.e., to create new provisions). This would seem to imply near zero bottom-line profits in 2000 and 2001 (our 2000 forecast of a CZK 100 mil. loss is similar, but for 2001 we have projected a CZK 1.8 bil. profit). The prospect of a close-to-zero profit in 2001 would not be particularly attractive, but it is too early, in our view, to talk about the size of provisions in 2001.
Separately, Komercni banka’s BoD was yesterday reported as expecting a CZK 8.2 bil. operating profit (i.e., profit before provisions) this year. This figure is only some 3% above our forecast of a CZK 7.94 bil. operating profit and should not come as a big surprise to the market. KB’s expected figure includes the effect of operating restructuring, which includes the layoff of 2,300 employees. Furthermore, KB is sticking to its old estimate of full-year 2000 provisions at CZK 7.6 bil. (this figure is, in our view, getting out of date; CEO Vavra has recently allowed for provisions ranging from CZK 7 bil. to CZK 9.5 bil.).
Finally, KB indicated yesterday that some of its subsidiaries could be sold. No further details were provided.
KB’s provisioning and other issues will no doubt be discussed at KB’s analyst presentation on Monday, July 31, when the bank presents six-month IAS figures.
(Ondřej Daťka)