Erste Group, the majority shareholder in lender BCR, will partially write down its goodwill in Romania by EUR 700 million pre-tax (EUR 627 million post-tax), the group has announced. “Following a successful buyout of the SIF minority shareholders – as announced on 14 September 2011 – the remaining BCR goodwill of EUR 1.1 billion will be supported by a substantially larger share of BCR's cashflow,” according to the group.

This came after Erste Group entered an agreement with SIF minority shareholders to buy their stake in BCR. “A point-in-time transaction pricing of minority shares does not necessarily reflect the underlying value of a business for the long-term controlling shareholder. A recent impairment test has warranted a goodwill write-down on the back of a slower than expected economic recovery and the corresponding weaker performance of the Romanian banking market,” Erste Group explains.

The group will also write down its entire Hungary – related goodwill. The goodwill represents the value of an entity, beyond its assets, and is a term used in accounting. “Furthermore, Erste Group will take charges for additional risk provisions totalling EUR 450 million pre-tax (EUR 450 million post-tax). This is due to unprecedented government intervention in the Hungarian banking market,” the group explained. Erste Group has also cut its sovereign exposure to Greece, Portugal, Spain, Ireland and Italy from EUR 1.9 billion at year-end 2010 to EUR 0.6 billion at 30 September 2011.

Austrian Erste Group, the majority owner in the largest Romanian lender BCR, has agreed to purchase a 24.12 percent stake in the Romanian lender from the four SIF, minority shareholders in the bank, in a combined share swap and cash deal worth some EUR 435 million in total. SIF Banat Crisana, SIF Transilvania, SIF Muntenia and SIF Oltenia will sell 24.12 percent or 2.6 billion shares in BCR to Erste Group, and in exchange will waive their rights to request the listing of BCR, as well as to special dividends. Erste Group’s participation in BCR is set to increase to 93.52 percent.

The deal valued BCR at some EUR 1.8 billion, much below its value when privatized. In 2006, the value of the bank was of EUR 6 billion, following the EUR 3.75 billion privatization of 61.5 percent in the bank. BCR’s listing on the stock exchange was one of the items included in the privatization contract.

Corina Saceanu, corina@romania-insider.com 

(photo source: Erste Group)