ÖVAG ‘to lay off 500’

Volksbank AG (ÖVAG) will sack hundreds of employees in the coming two and a half years, according to a report.

The Kurier claims today (Weds) that the struggling bank plans to dismiss 500 of its staff in Austria. This would mean that the bank – which did not comment on the report – would lay off one out of two employees. Especially elderly ÖVAG employees who earn considerably high sums will be affected, according to the newspaper. The report has it that the bank’s board is already in talks with the works council to find socially bearable solutions for the employees facing the sack.

ÖVAG boss Gerald Wenzel announced last month that his financial institute may sustain losses of 900 million Euros this year. More and more banking sector analysts think that a nationalisation of ÖVAG is within the realms of possibility due to the bank’s dismal state and the bleak economic outlook. ÖVAG has received around one billion Euros in taxpayers’ money in the past years. The government – formed by the Social Democratic Party (SPÖ) and the People’s Party (ÖVP) – agreed to make the contributions to avoid a collapse of ÖVAG in the crisis. The bank is currently unable to pay interest on the so-called participation capital. Other banks were supported in the same way.

ÖVP Finance Minister Maria Fekter appealed on ÖVAG chiefs to “present a credible plan for a substantial restoration” last month. Fekter explained that six billion of 15 billion Euros put into the bank stability fund were still available if Austria’s financial institutes needed more financial help.

ÖVAG made a loss of 1.123 billion Euros after taxes in 2009. The Kurier report about sackings set to happen at ÖVAG comes around two years after Hypo Group Alpe Adria (HGAA) was taken over by the state. Kommunalkredit – which was part of the ÖVAG Group – was also nationalised after the global economic downturn started in 2008.

Several experts refuse to rule out a nationalisation of ÖVAG due to the bank’s troubles in Romania. Its branch in the Eastern European (EE) country has been in immense financial difficulties for years. ÖVAG hoped Sberbank would buy its Romanian affiliate but the Russian banking giant refused to do so. Sberbank bagged ÖVAG’s eight other international subsidiaries for 585 million Euros in September. ÖVAG officials reportedly hoped for significantly more money from the Moscow-based bank for Volksbank International (VBI). Around one year ago, reports had it that ÖVAG’s international departments could be worth nearly one billion Euros. VBI made a loss of 21.8 million Euros in 2010.

Andreas Ittner, director of the Austrian National Bank (OeNB) said last month it had to be seen whether ÖVAG would get more support from the state. He explained that the question whether its restructuring process would work out or not could be decisive. Wenzel said he could not say for certain whether his bank needed more money. The ÖVAG CEO argued he had to wait and see whether European Union (EU) financial market regulators would go ahead with their plans to order banks to increase their equity ratios.

Wenzel vowed to be “fully engaged” in trying to get ÖVAG’s finances in order. Hans Hofinger, who heads the bank’s supervisory board, stressed he hoped that Wenzel would stay as head of the executive board. Rumours that ÖVAG’s decision-makers may be forced to quit if the bank were to need more participation capital are intensifying.

ÖVAG reportedly plans to focus on its core products and services to get back in the black. The bank is, according to media, willing to sell its real estate management department and participations in insurance companies abroad. “We are bracing for a rather long crisis,” a spokesman for ÖVAG recently said about attempts to raise the bank’s capital.

ÖVAG is not the only Austrian bank struggling to perform after what is widely considered as a too quick and poorly planned expansion in EE. Vienna-based Erste Bank Group AG (Erste Bank) said some weeks ago that it could suffer a loss of up to 800 million Euros this year. The bank – one of the biggest names in Central and Eastern Europe (CEE) – sustained a net loss of 973 million Euros in the first nine months of 2011.

Erste Bank chief Andreas Treichl explained that especially the negative performances of his banking group’s Hungarian and Romanian subsidiary companies affected the figures. He warned Erste Bank may write off large amounts in Hungary after having done so in the country and in Romania already in the first three quarters of the current year. Erste Bank is considered as a so-called system-relevant bank due to its size and high activity all over the continent. Analysts are at loggerheads whether the same applies to ÖVAG. Erste Bank has around 51,000 employees. VBI, now controlled by Sberbank except the Romanian department, has nearly 4,000 staff in 300 branches. ÖVAG runs 68 branches in Austria.

ÖVAG was the only Austrian bank which did not pass the European Banking Authority’s (EBA) second and most recent stress test. The check’s results were announced in July. Apart from ÖVAG, five Spanish banks failed the test as well as did two banks based in Greece. Overall, 90 banks based in the European Union (EU) and Norway were investigated.

Business papers criticised the test’s criteria as not strict enough. Newspapers in the United States claimed that “Europe messed up another stress test” while Germany’s Börsen-Zeitung said the EBA’s investigation was a “typical placebo”.

ÖVAG did not meet the EBA’s core tier 1 capital ratio criteria of five per cent. ÖVAG’s equity was found to be only 4.5 per cent. Reports have it that European financial institutes must have an equity ratio of nine per cent from next year to ensure they do not collapse if the volatile economic situation worsens.

Rumours that ÖVAG will make 500 employees redundant come on the heels of news that 0.8 per cent more Austrians had no job in October than in the same month of 2010. Around 300,400 people living in Austria were out of work last month, SPÖ Labour Minister Rudolf Hundstorfer announced. The minister was quick to claim that the development was not heralding a new crisis on the domestic job front. He described the rise as a “bump in the statistics”.

Hundstorfer promised the government was “well prepared” to react appropriately if the economic climate kept decreasing in the coming months. The SPÖ-ÖVP administration managed to avoid a wave of sackings in the Austrian industrial sector in the past three years by compensating firms for some of their losses if they kept staff at least on short-time contracts instead of laying them off.

The number of people who have a job rose too last month, according to the labour minister. He said that Austria had 3.45 million employed residents in October. These figures mean Austria continued to have the lowest jobless rate among all 27 European Union (EU) members at 3.9 per cent.