Erste Group 4Q 09 results - Missing pre-tax expectations, but good quality of earnings (neutral)

Several 'non-recurring' items booked as 'other expense' (real estate impairment, impairment of ABS/CDO portfolio, value-added tax back payments, litigation provisioning) amounting to around EUR 50 mn were burdening pre-tax income. But the tax rate was lower than expected also affected by one-offs. Core earnings (net interest income, fee & commission income) topped our and consensus estimates and operating costs were lower than expected.

From a segmental perspective Group Corporate and Investment Banking was better than expected but distorting by a shift of risk provisions from the GCIB to the Romanian retail segment. Austria and Czech earnings were in-line with estimates, while Romania (distorted by the a.m. effect), Hungary (impacted by impairments of IT systems and other receivables), Slowakia (higher other costs) and Ukraine (high risk costs) was weaker than estimates.

NPLs increased by EUR 400 mn +5% qoq showing a declining trend (15% in 2Q, 7% in 3Q) and NPL coverage improved slightly from 56.7% to 57.2%. Risk costs still were higher than expected due to higher provisioning in Ukraine, Czech Republic, in the Austrian Savings Banks and in Romania. Tier 1 ratio (total risk) stood at 9.2% and core tier 1 (ex part cap.) at 8.3% slightly ahead of our estimates due to positive AFS revaluation effects directly booked against equity. A dividend of EUR 0.65 will be proposed by the management, above estimates. As expected there is still no detailed outlook.