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By Francois Murphy
VIENNA, Oct 5 (Reuters) - Austrian lender Raiffeisen Bank International and its unlisted parent Raiffeisen Zentralbank have decided to go ahead with their proposed merger aimed primarily at boosting RZB’s capital buffer, the companies said on Wednesday.
Only Italy’s Monte dei Paschi di Siena and Allied Irish Banks fared worse than the two Raiffeisen banks combined in a stress test of 51 major European lenders, results of which were published in July, increasing pressure on Raiffeisen to take action.
“The management and supervisory boards of Raiffeisen Zentralbank Oesterreich AG (RZB) and Raiffeisen Bank International AG (RBI) have passed in principle a resolution to merge RZB and RBI,” RBI said in a statement.
Under the plan agreed on Wednesday, which will be put to shareholders for final approval in January, parent company RZB will be merged into central and eastern Europe specialist RBI, with RZB shareholders receiving RBI stock in exchange.
RBI will issue new stock with which to make that payment, increasing its shares in issue by roughly 10-13 percent, meaning many existing RBI shareholders’ stakes will be diluted.
The exact number of shares that will change hands will not be announced until December but the combined bank would have a free float of between 34.6 percent and 35.7 percent, compared with RBI’s current 39.2 percent, the banks said.
The plan is in large part a response to pressure from European regulators for RZB to increase its capital reserves and simplify the group’s complex structure.
RBI, which operates across central and eastern Europe, and RZB announced in May that they were considering a merger, and RZB has since said it plans to sell shares in insurer Uniqa , a step also aimed at increasing its capital buffer.
RZB, part of the cooperative Raiffeisen group of banks, has complained that those measures were not taken into account in the European Banking Authority’s stress test, which was based on data from the end of last year.
The merged entity would have a fully loaded common equity tier 1 (CET) capital ratio, a measure of financial strength, of 11.3 percent at the end of June this year, the banks said. That is more than Raiffeisen’s 10.6 percent and less than RBI’s 12.2 percent at the same point.
RZB owns roughly 61 percent of RBI. It in turn is owned by Raiffeisen’s regional Landesbanken, which are owned by 1.7 million Austrians through hundreds of local credit unions. The constellation forms Austria’s most extensive banking network. (Reporting by Francois Murphy; Editing by Adrian Croft and Janet Lawrence)