Rumours that Volksbank AG (ÖVAG) may be nationalised are increasing after the bank warned of immense losses.
ÖVAG boss Gerald Wenzel said yesterday (Thurs) the finance institute could suffer a loss of 900 million Euros this year. He added that the losses may also be higher. ÖVAG received one billion Euros of so-called state participation capital from funds provided by the government coalition of Social Democrats (SPÖ) and the People’s Party (ÖVP) three years ago. The money was meant to help Austria’s biggest banks through the economic crisis. ÖVAG intended to pay back around 300 million Euros this year, but is expected to postpone the transaction due to the bleak outlook.
Die Presse stressed today that ÖVAG did not pay interest for the support it received from the state. This means that the finance ministry lost out on 279 million Euros, according to the newspaper – which claims that these developments increase the chances of a nationalisation of ÖVAG.
ÖVP Finance Minister Maria Fekter instantly reacted to news that ÖVAG is bracing for huge losses. In a written statement issued to the press, the minister called on the bank to “present a credible plan for a substantial restoration.”
Fekter added that Austria’s coffers contained enough money for further support for the country’s banks if it turned out that higher participation capital transactions were needed to stabilise their condition. Six billion of 15 billion Euros put into the fund are still available, according to Fekter.
ÖVAG – which suffered a loss of 1.123 billion Euros after taxes in 2009 – would be the third Austrian financial institute to be nationalised after the outbreak of the global economic downturn in autumn 2008. Hypo Group Alpe Adria (HGAA) and Kommunalkredit are already owned by the Republic of Austria after the SPÖ-ÖVP administration decided to acquire the banks to rescue them from ruin.
Wenzel explained yesterday the plan was to write 700 million Euros off at ÖVAG’s ailing Romanian subsidiary. The department, which has 1,400 employees, was the only part of Volksbank International (VBI) ÖVAG failed to sell to Sberbank last month. The Russian bank agreed to acquire all but one of the nine national branches of VBI, which was ÖVAG’s international operations section, for 585 million Euros. Wenzel announced ÖVAG would be restructured in the coming months to improve its reputation.
ÖVAG was the only Austrian bank which failed the second European stress test. The check – which took place last July – has been widely criticised. Its relevance is doubted as several institutes which fared well needed support from federal governments and national banks only a short while later. ÖVAG did not meet the European Banking Authority’s (EBA) criteria including a core tier 1 capital ratio of five per cent under extraordinary economic circumstances in Europe such as a dramatic decline of the gross domestic product (GDP) of some countries. The Vienna-based bank’s equity ratio was found to be just 4.5 per cent. ÖVAG managers said they would take the results seriously, but also explained they were convinced that the deal with Sberbank would help the bank’s recovery.
Raiffeisenzentralbank (RZB) and Erste Group Bank AG (Erste Bank) passed the crisis stress check on Europe’s leading banks.
Erste Bank chief Andreas Treichl warned only a few days ago that his finance institute expected a loss between 700 million and 800 million Euros this year due to the weak performance of its affiliates in Hungary and Romania. The value of shares of the bank traded at the Vienna Stock Exchange (WBAG) suffered dramatically after the news. Treichl said on Monday he was not surprised by the plunge, explaining he had not expected an improvement after the news he issued earlier on the same day.
The Erste Bank CEO announced his bank decided to reschedule the payback of the 1.2 billion Euros of state participation capital by around one year. Treichl made clear Erste Bank intended to repay the sum with interest. Treichl warned Erste Bank – one of the most powerful banks in Central and Eastern Europe (CEE) – will not pay a dividend to its shareholders. Austrian National Bank (OeNB) Governor Ewald Nowotny appreciated the decision. Nowotny also said he considered Erste Bank’s move to keep the state participation capital for now as right.
Austrian banks are comparably little engaged in Greece – in contrast to Germany’s Deutsche Bank and the most powerful banks of France and Italy. The institute’s portfolios contain large shares of Greek government bonds, an aspect which put them under close scrutiny in the public eye, among analysts and rating agencies. Austrian banks’ high activities in Eastern Europe (EE) were seen as a possible danger to their stability in 2008 and 2009 when the region suffered significantly under the credit crunch. Experts have been less pessimistic in recent months. However, now that the outlook on the European economy is more uncertain than ever before, Austrian institutes may once more brace for higher strains because of their EE operations.