Erste Group cut to Hold at RCB   

Given the improved outlook, the reduced “systemic risk” based on central bank action (affecting our short-term COE calculation) and the end of the share overhang of the Erste Foundation, which placed 14 mn Erste shares at the beginning of October, RCB increased the target price for Erste Group to 24.0 euros but changed the recommendation from Buy to Hold after the stock has rallied more than 50% in 2H.

"Erste was able to pass EBA capitalization criteria (EBA CT 1 of 9.9% as of 9/2012) with a 10% margin and we assume that Erste should be able to generate enough capital to repay its participation capital still achieving Basel3 targets including the Austrian Finish. Therefore it is fair that the market has priced out further dilution via a capital increase in order to service participation capital. We therefore see further rerating potential in the share price in sync with Erste’s capital generation power and expect the tangible BPS to expand from EUR 21.8 to EUR 24.2 by the end of 2013e. However, crossing a price/tangible book ratio of 1.0 would mean that ROTE should exceed Erste’s costs of equity, which we do not expect before 2014 (adj. ROTE 2013e: 8.8%, 2014e: 10.5%)", analyst Stefan Maxian wrote in a note to investors.