Austrian Raiffeisen Bank International (RBI) will shrink its assets by 20% due to increasing pressure from the crisis in Ukraine and the sharp appreciation of the Swiss franc, writes Financial Times.
Since the beginning of the conflict in Ukraine investors are worried about the effects of the devaluation of the ruble on the Russian business of financial group. Subsidiary bank in Russia generates the largest share of the profits of the RBI, which is the combined business in Central and Eastern Europe's third-largest lender in Austria. Following the decision of the Swiss central bank to remove the ceiling on the exchange rate of the franc against the euro and the subsequent appreciation of the Swiss currency, however, to the concerns of investors added that some of the clients of Raiffeisen Central Europe, which received loans in Swiss francs may have difficulty in repayment.
This cocktail of worries affect the price of the underlying bonds Raiffeisen - notes the FT. On Wednesday, they traded at an average 58 cents against the euro, signaling that investors in debt markets fear a significant probability of insolvency. Insurance against default (credit default swaps) of subordinated debt of the financial group also traded at levels that indicate that investors believe there is a 70% chance of default within five years.