Bawag shares have experienced their biggest drop in three years following the revelation by shareholder activist investor Petrus Advisers that it has taken a short position in the Austrian lender. Petrus Advisers has raised concerns about Bawag’s deposit base, its exposure to US real estate, and loans to management. The news comes as Bawag reportedly acquired MoCo, a digital mortgage start-up, for a nominal sum in Ireland. The acquisition is pending regulatory approval.
Petrus Advisers has criticized Bawag’s franchise, stating that it is “degrading” and that the lender has lost market share in retail deposits. This has resulted in an increase in the ratio of loans to deposits. Petrus Advisers, which was previously a shareholder in Bawag, has recently taken a short position, indicating its belief that the shares will decline. Bawag responded to the report by stating that it is inconsistent, out of context, and misleading. The bank also highlighted that Petrus Advisers’ short position may explain the motivation behind the report and questioned its overall credibility.
Bawag emphasized the importance of maintaining a top-flight governance structure as part of its long-term sustainable profitability strategy. The bank pointed out that its average return on tangible common equity has been around 15% over the past decade and has set a target of more than 20% for 2023, aiming to become one of the most profitable and efficient banks in Europe. Despite the initial slump of 14.3%, Bawag shares have since recovered slightly to trade at around 3.5%. The shares had reached a record high in late February but dropped following the regional banking turmoil in the US.
Petrus Advisers has argued that Bawag is replacing deposits with wholesale funding and is behaving more like a credit hedge fund by increasing its commercial real estate loans in the US and purchasing structured credit portfolios. The firm has also criticized the high pay of Bawag’s CEO, Anas Abuzaakouk, and questioned loans to management, which Petrus Advisers claims have reached €36m. Petrus Advisers stated that Bawag has eliminated all revenue-generating business units and now heavily relies on brokers and third-party vendors for the growth of its balance sheet. The activist investor believes that Bawag requires intervention from regulators and should not be allowed to distribute capital until the franchise stabilizes and necessary leadership changes are made.
In the past four years, Bawag has returned over €1bn through dividends and repurchased more than €700m in shares. While revenue has increased by 14% during this period, net income and pre-tax profit have declined. Bloomberg