Translated material
Market neutrality
VTB reporting did not affect its stock prices
VTB Group presented yesterday the results of its activities under IFRS for the first half of the year. And although the reporting turned out to be better than analysts predicted, it did not seriously affect the bank’s stock prices. Investors also reacted neutrally to the statement by VTB board member Nikolai Tsekhomsky about a possible buyout of the group’s shares. Analysts note that in a crisis, VTB’s reporting for the third quarter and the year as a whole is more important.“VTB’s net profit amounted to $679 million (an increase of 34.7% compared to the first half of 2007), exceeding market expectations ($630-650 million) and significantly exceeding our expectations ($506 million),” notes Deputy Head of the Analytical Department of the Sovlink company Olga Belenkaya. “Meanwhile, operating income (net interest income before provisions plus net fee and commission income excluding one-time income) more than doubled, beating our estimates by just 4.4%.” Since the beginning of the year, assets have grown by 17.4%, to $108.8 billion. “The share of the securities portfolio has decreased from 14.6% at the end of 2007 to 10.2%,” says Ms. Belenkaya. -- This is good news, especially considering the situation on the stock market. In addition, VTB was able to compensate for the losses on investments in securities that occurred at the beginning of the year based on the results of the second quarter.” As Mr. Tsekhomsky reported yesterday, “in the second quarter the bank received income from securities of $276 million.” As is known, the loss on VTB’s securities portfolio in the first quarter amounted to more than $450 million. VTB’s loan portfolio has increased by 29.3% since the beginning of the year, to $77.6 billion. “The volume of lending to retail clients increased by 58.5%, to $12.2 billion, which allowed VTB to significantly increase its market share in this segment - from 5.9% at the end of 2007 to 7.5% by the end of the first half of 2008,” the statement said. .
“VTB actively attracted external loans in the first half of the year at relatively low rates, while increasing the cost of borrowing for its clients, so the interest margin increased, which is also positive news,” continues Ms. Belenkaya. “While the cost of borrowing has increased for many financial institutions, VTB was able to increase its net interest margin to 4.8% from 4.4 in 2007,” the press release states. “The reporting as a whole can be assessed as neutral. But the greatest interest is how the growing instability in global financial markets will affect the bank’s policies and results in the second half of the year,” says Ms. Belenkaya.
Investors were very indifferent to the group's reporting. Firstly, stock prices of Russian credit institutions now depend solely on world events in the banking system. Yesterday the market was growing, and banking securities were among the leaders. Thus, during the day, Sberbank shares rose by more than 7%, and VTB by 6.15% (however, now their value is 63% lower than the placement price in 2007). Secondly, these data cannot indicate how VTB is experiencing the financial crisis. However, answering a question about possible losses on the securities portfolio in the third quarter, Mr. Tsekhomsky said yesterday that it would be “unfair to talk about losses.”
Reports about VTB's possible repurchase of its shares from the market also did not cause much excitement in the market. “This is an important issue for us, we will consider it, but I cannot tell you the timing and volume,” said Mr. Tsekhomsky. As is known, some minority shareholders insist on buying back shares, dissatisfied with the fact that the price of the securities has dropped significantly since the placement. In addition to shares, VTB is considering the possibility of repurchasing its Eurobonds. “This will depend on the liquidity available to the bank,” Mr. Tsekhomsky said, noting that currently the CDS (credit default swaps) curve does not adequately reflect the bank’s credit quality.
“By the end of the year, VTB will have to repay Eurobonds worth $1.7 billion. Measures by the government and the Central Bank to support the financial sector apply most to the largest state-owned banks, and as a result of the crisis, VTB may even strengthen its position. However, given the very difficult market situation in the third quarter, our forecast for net profit for the year ($1.584 billion) may be too optimistic,” says Ms. Belenkaya.
Large Russian banks no longer experience liquidity problems, while small ones, which do not have direct access to free budget funds and Central Bank money, are left to consolidate, according to experts interviewed by RIA NOVOSTI . This week, at three auctions, the Ministry of Finance's offer for placement on bank deposits for various periods reached a record 1.1 trillion rubles. However, at the auctions held on Monday and Tuesday, banks selected approximately 371 billion rubles. of the proposed 900 billion, and the third auction did not take place at all due to a lack of applications. Low demand is also observed for repo transactions. Thus, yesterday the volume of transactions at the morning auction decreased compared to trading on Tuesday from 77 to 66 billion rubles.