The measure is part of a larger package of extraordinary charges which are expected to turn the group’s profit of some EUR700 million for the first nine months into a loss of about EUR920-EUR970 million, Erste said in a statement.
The goodwill write-down in Romania will not affect regulatory capital or tangible equity, the bank said.
Following a successful buyout of the SIF minority shareholders in its Romanian unit Banca Comerciala Romana (BCR), the remaining goodwill will be supported by a substantially larger share of BCR’s cash flow, it added.
The management board of Erste Group has decided on a number of measures that affect the presentation of its CDS portfolio, its Hungarian and Romanian operations, and result in the uniform application of the effective interest rate method across the group.
“Our hopes that we will see a solution to the sovereign debt crisis in Europe in the near future have decreased considerably over the last couple of weeks. We have therefore taken radical action in our balance sheet to prepare Erste Group for a prolonged period of uncertainty”, said Andreas Treichl, CEO of Erste Group Bank AG.
Erste’s extraordinary measures are estimated to have a total post-tax impact of EUR1.58 billion on the income statement for the first nine months of 2011 and a cumulative historic impact to 30 September of EUR2.07 billion.
“But all of these measures are exclusively one-off charges which will prepare us as a bank for this situation ahead. Supported by a continuous strong operating performance our core tier 1 ratio at the end of this year will remain unchanged versus the end of 2010,” Treichl said.
Erste said that it will postpone the early repayment of the state portion of the participation capital (EUR1.2 billion) by at least one year, “in response to the significantly deteriorated outlook for the euro zone economies and as a precautionary measure.” Also, the board of Erste will propose to not pay a dividend for 2011, but to continue servicing participation capital.