According to Hungary AM, citing Russian daily RKB, the Russian subsidiary of OTP Bank, Investsberbank (ISB), has a net loss in 4Q06, although it still earned a profit in full-year 2006. The reason given for the fourth quarter loss was a focus on merging the operations of acquisitions Promfinservicebank and Omskpromstroibank. At the same time, both of the acquisitions were said to be profitable and are expected to remain so. No figures were provided.
Our view: Whilst news of the 4Q06 net loss of ISB appears negative, particularly given that OTP Bank should consolidate its newly acquired Russian operations from October 30, 2006, the reasons behind the loss are important, particularly if the driver was one-off consolidation adjustments, as it appears may be the case. Of course, the net loss, if it relates to accounting adjustments, may have been booked, at least partly, prior to consolidation, or could, depending on the factors involved, impact equity directly rather than the P&L of OTP Bank under IFRS.
According to the interim reports of ISB, under RAS, net earnings for 9M06 reached RUB 540.5m (+223.5% y/y), approximately EUR 15.9m. This suggests a run-rate in line with management guidance from OTP Bank, that, under IFRS, the full-year net earnings of ISB should reach EUR 15-20m in 2006, even if unforeseen accounting issues in 4Q06 were to lead to the annual target being missed.