UPDATE 2-Erste drops as eastern European revenues disappoint

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By Boris Groendahl

VIENNA, April 30 (Reuters) - Austria's Erste Bank der oesterreichischen Sparkassen posted a 25-percent rise in first-quarter net profit, beating forecasts but disappointing investors with a weak revenue mix that weighed on its shares.

Eastern Europe's second-biggest lender raised net profit after minorities to 302 million euros ($411 million), 4 percent more than the average estimate in a Reuters poll, because its trading income and tax rate came in better than expected.

But its main revenue source, interest income, was below forecast and analysts said the better than expected performance did not result from the relevant parts of the business. The shares dropped as much as 3 percent in early trading in Vienna.

"At the bottom line these look a slightly disconcerting set of numbers," said Cazenove analyst Piers Brown in a note to clients, also pointing to disappointing growth in eastern Europe and costs that rose faster than expected.

Trading income -- which derives from a bank's own dealing in securities and other assets and is a volatile revenue source -- was the biggest surprise in Erste's results, coming in 37 percent higher than a year ago, at the top end of forecasts.

Net interest income, Erste's biggest revenue source, increased by 25 percent, but less than forecast. Fee and commission income rose 28 percent, better than predicted.

Analysts said revenues at Romania's Banca Comerciala Romana, Erste's biggest growth hope, and at other eastern European businesses were disappointing and only partly offset by the fact Erste's domestic Austrian business beat forecasts.

GROWTH HOPE BCR

Erste Chief Executive Andreas Treichl, who topped a buying spree in central Europe with the 3.75 billion-euro takeover of BCR last year, said he stood by his pledge to raise 2007 net profit by at least a quarter.

Amid a merger frenzy among European banks, in which Erste is seen by analysts as a possible target in a few years' time, he reiterated that his bank will be busy this year with digesting the BCR acquisition.

"We have ... set the course for the remaining quarters," Treichl said. "The main focus of our work this year will be to integrate BCR into Erste Bank Group, to expand our Ukrainian subsidiary and to implement our new organisational structure."

BCR contributed 44.3 million euros to net profit, which would have risen by 10 percent without it. Erste did not provide year-ago comparisons for the Romanian bank. It forecasts BCR's net profit to rise by 40 percent annually until 2009.

Erste's share price has risen by 3 percent this year, making it one of the worst performers among banks in emerging Europe. They changed hands down 2.6 percent at 59.89 euros by 0821 GMT.

The stock trades at 14 times next year's estimated earnings, less than its peers as investors remain sceptical about the merits of its expensive BCR acquisition and growth prospects in more developed eastern European countries.

To read the Erste analyst poll , click on [ID:nL26311231]