ÖVAG plans drastic workforce level reduction

Volksbank AG (ÖVAG) plans to dismiss one in five employees in a desperate attempt to avoid going bust.

The loss-making bank, which received an emergency injection of one billion Euros from the state three years ago, said yesterday (Thurs) around 250 employees would lose their jobs in the coming months. This figure means that 20 per cent of the financial institute’s workforce must go.

ÖVAG’s supervisory board also decided to try selling the bank’s subsidiary companies in Romania and Malta. Another aspect of its efficiency programme is the plan to end leasing business engagements. ÖVAG chiefs also said the bank would stop providing credits for major investment activities. Furthermore, ÖVAG will stop its real estate operations.

ÖVAG looks back on a quick expansion in Eastern Europe (EE) – a process which may have been badly planned and carelessly carried out, say analysts who point out the low sum the bank expects from Sberbank. The Russian financial sector giant agreed to transfer 585 million Euros for ÖVAG’s Volksbank International (VBI) department. ÖVAG hoped to rake in twice the sum before one interested company after the other exited takeover negotiations.

The deal with Sberbank is not through yet. The Moscow-based bank reportedly calls for a discount due to VBI’s poor performance in the EE region. Sberbank refused to take over ÖVAG’s Romanian affiliate because of its high losses.

ÖVAG suffered a loss of 689 million Euros in the first nine months of this year. Its executive board said last month the annual loss might range around 1.2 billion Euros. The Vienna-based bank, which is headed by Gerald Wenzel, was among the nine finance institutes which did not pass the European Banking Authority’s (EBA) stress check last July. The test was carried out to determine whether the banks were able to weather a worsening of the current crisis. Ninety banks’ capital ratios were examined by EBA experts in the stress test.

News that ÖVAG considers redundancies came on the same day as information that Andreas Treichl’s contract at Erste Bank Group AG (Erste Bank) was extended until mid-2017. As CEO of the bank, Treichl turned Erste Bank into one of the biggest investors in Central and Eastern Europe (CEE) over the years. Erste Bank officials informed shareholders yesterday that the contracts of four other executive board members were extended as well.

Treichl said last week Erste Bank planned to reduce its workforce level in Hungary. He announced the intention was to employ 400 to 450 fewer staff in the coming years. The bank boss also made clear Erste Bank had no plans to pull out from doing business in the country despite the difficult economic situation. He spoke about envisaged “restructuring and re-dimensioning procedures” at Erste Bank Hungary. The bank has 43 branches. Treichl did not say whether any of them would be shut.