More of a polka than a waltz

23 June 2003

The bank s German parent HVB has little choice. It desperately needs the extra capital, and can t afford to be greedy. The problem is that HVB is selling one of its best assets. Nor will the IPO cure HVB s capital shortage by itself. More needs to be done.

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HVB, Germany's secondbiggest bank, may raise as much as E1.2bn by selling a 25% stake in its Bank Austria unit to fund expansion and boost capital after a record loss last year.

Bank Austria, the country's largest bank, will sell 38m shares for between E27 euros and E31 euros each. The initial stock offering is Europe's biggest in more than a year. HVB is cutting the stake in Viennabased Bank Austria, the most profitable of its units, after an E829m loss last year eroded reserves.

The sale of a quarter of the company values Bank Austria at about E4.7bn, 40% less than HVB paid for it more than two years ago.

Proceeds from the sale will also be used to boost HVB's capital and fund Bank Austria's expansion in Eastern Europe. The Austrian bank aims to generate 38% of pretax profit from central and eastern Europe in 2006, from 29% last year, while cutting its cost income ratio to 63% by 2006 from 69% now.

Bank Austria's new shares will start trading in Vienna on July 9. The bank and its parent have agreed to not sell any more shares in Bank Austria for 180 days after the initial sale. The new shares will be entitled to this year's dividend of about E1.02. Goldman Sachs and JP Morgan are joint lead managers.

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