Shares in Austrian bank Bawag slump after short seller takes bet

In Ireland, Bawag had reportedly for a nominal sum bought MoCo, a digital mortgage start-up that is eyeing an entry into the market here. It is awaiting regulatory approval.

Bawag shares have slumped the most in three years after shareholder activist investor Petrus Advisers disclosed a short position in the Austrian lender and raised questions about its deposit base, US real estate exposure, and loans to management.

In Ireland, Bawag had reportedly for a nominal sum bought MoCo, a digital mortgage start-up that is eyeing an entry into the market here. It is awaiting regulatory approval. 

Bawag’s franchise is “degrading” and the lender has lost retail deposit market share, pushing up the ratio of loans to deposits, the investor said in a presentation. Petrus, previously a shareholder in the Austrian lender, said it had recently taken a short position, betting that the shares will decline.

“The content of the report is inconsistent, out of context, and misleading. It is also inconsistent with Petrus Advisers’ view of Bawag until very recently,” the bank said in a statement.

“The report discloses that Petrus Advisers has built up a short position in Bawag stock, which may explain the economic motivation and the overall credibility of the report,” the bank said.

It also said that “maintaining a top-flight governance structure forms an integral part of Bawag’s strategy to ensure long-term sustainable profitability” and pointed out the lender’s average return on tangible common equity has been about 15% over the past decade, with a target of more than 20% for 2023, which would make it “one of the most profitable and efficient banks in Europe.” 

Shares of Bawag dropped as much as 14.3%, before paring declines to trade about 3.5%. The shares had hit a record high in late February and then slumped in the wake of the regional banking turmoil in the US. 

Petrus argued that the lender is replacing deposits with wholesale funding, and is acting more like a credit hedge fund by increasing its commercial real estate loans in the US and buying structured credit portfolios. The firm also criticised pay for chief executive Anas Abuzaakouk as too high, and questioned loans to management that Petrus said had reached €36m. 

Bawag “has erased all revenue-generating business units and relies almost exclusively on brokers and third-party vendors for the structure and growth of its balance sheet,” Petrus said. “We think Bawag needs an intervention from the regulator and should not be allowed to distribute capital until the franchise has stabilised with necessary leadership changes.” 

Bawag has returned more than €1bn through dividends in the past four years and repurchased more than €700m in shares. Revenue has increased 14% in the period, though net income and pre-tax profit declined. 

Bloomberg