TCS Sinks as Moscow Meeting Spurs Concern of Bad Loan Pickup

Apr 03, 2014 4:27 pm ET

(Adds Russia-U.S. equity index in second paragraph.)

April 3 (Bloomberg) -- TCS Group Holding Plc, owner of Russia’s third-largest card issuer, fell the most in four months after analysts said the company indicated at a meeting today that it may boost bad-debt provisions as growth slows.

TCS, which trades at about a third of its initial public offering price, sank 18 percent to $6.60 in London yesterday. The stock has dropped 41 percent since TCS founder Oleg Tinkov said on Jan. 28 that “irrational behavior” is driving the stock’s selloff, extending its plunge this year to 58 percent. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. slipped 1.3 percent to 84.86, the biggest retreat in two weeks.

Chief Executive Officer Oliver Hughes said in Moscow today that the bank may increase its annual target for delinquencies, according to analysts at JPMorgan Chase & Co. and VTB Capital who attended the meeting. Darya Ermolina, spokeswoman at TCS, declined to comment on the details of the meeting.

“The banking sector is getting hit by slowing economic growth in Russia,” Ivan Manaenko, head of research at Veles Capital in Moscow, said by phone. “The retail banking sector, where TCS is the most active, is getting hit the most as consumer demand weakens.”

The lender, founded as Tinkoff Credit Systems in 2007 and part-owned by Goldman Sachs Group Inc., has issued more than 4 million cards in Russia, according to the company. The bank is modeled on Capital One Financial Corp., which pioneered the distribution of credit cards through direct mail.

Delinquency Rates

“We see risks to the 2014 earnings targets,” Alex Kantarovich, the head of Russian equity research at JPMorgan in Moscow, wrote in a note to investors. “Delinquency rates among the customers not delinquent in the previous month are unusually high, a telling leading indicator.”

Russia’s $2 trillion economy will probably expand less than 1 percent this year, down from 1.3 percent in 2013, central bank Chairman Elvira Nabiullina said yesterday. Inflation is at a “high” risk of exceeding the bank’s 5 percent goal, she said.

“This deterioration of credit quality clearly reflects a sizable deterioration in the economy, where mass market is much more affected than affluent,” Luis Saenz, London-based head of equity sales and trading at BCS Financial Group, which has a sell recommendation on the stock, wrote in a note. “Nevertheless, the bank has a strong capital position, ample liquidity and tight risk management.”