Buying bank shares is an option, minister admits

People’s Party (ÖVP) Economy Minister Reinhold Mitterlehner has revealed that Austria would acquire banking stocks to save the finance institutes from ruin in the worsening economic crisis.

Mitterlehner told national broadcaster ORF yesterday (Sun) that the Republic of Austria was ready to buy bank shares in a worst case scenario. Assumption of liabilities and paying so-called state participation capital are other possible measures to protect the country’s banks from going under in the current Eurozone crisis.

Erste Bank Group AG (Erste Bank) and Volksbank AG (ÖVAG) shocked analysts with news of high losses in the past weeks. Nevertheless, renowned experts still consider Austria’s leading banks as a safe haven. With Hypo Group Alpe Adria (HGAA) and Kommunalkredit, two domestic finance institutes had to be taken over by the state due to their dismal state in the past three years. Others were provided with billions of Euros to make it through the economic downturn. The lion’s share of these supportive measures has not yet been paid back.

Mitterlehner warned yesterday that a collapse of a bank big enough to be considered as relevant to the whole sector’s wellbeing would have affected all kinds of activities and customer services “including the operation of cash machines.”

The economy minister said politicians’ current chief priority had to ensure that banks made credits available to companies. He said that banks which called for financial support from the state could be ordered to do so by law. Stricter regulations regarding banks’ equity ratios – set to come into effect in 2012 – may have negative effects on their granting of credits. EMA, the new European Banking Authority, said finance institutes had to increase their equities to gear up for possibly tough times ahead.

Mitterlehner said the real economy managed to evade being seriously affected by the current crisis the European Union’s (EU) 17 Eurozone members were confronted with. However, the minister told the ORF that the situation could deteriorate if banks stopped accommodating small and medium-sized enterprises (SMEs) with loans. Such a development would confront the real economy with “big problems”, Mitterlehner warned yesterday.

Meanwhile, ÖVP Finance Minister Maria Fekter said she was certain that the domestic economy would grow more strongly than predicted. The minister said in a radio interview on Saturday that the gross domestic product (GDP) would soar by more than 0.85 per cent from 2011 to 2012. She added: “Obviously, this is not guaranteed.”

The Institute for Economic Research (WIFO) announced last month that the country’s GDP was set to improve by 0.8 per cent from 2011 to 2012. WIFO said only in July it expected a 1.8 per cent rise.

Bank Austria (BA) economist Stefan Bruckbauer warned on Friday that Austria’s industry could experience a “slight recession” in the coming months due to a decline of orders in October. Bruckbauer said that the country’s industrial sector would grow by seven per cent from 2010 to 2011 with a “very modest” rise in 2012. He explained: “We do not expect a substantial downturn (for the Austrian industry) in 2012. A production plus of three per cent (compared to 2011) should be within reach.”