VBI sale ‘sealed soon’

Volksbank AG (ÖVAG) bosses and Sberbank chiefs will sign contracts about the planned takeover of Volksbank International (VBI) later this week, according to Austrian business papers.

Reports from today (Mon) have it that the struggling Austrian bank eventually agreed with the Moscow-based finance sector giant about a takeover price for VBI. Sberbank declared interest in acquiring all but the Romanian branch of VBI already last year but kept calling for a discount for months due to the uncertain economic outlook and the bank’s weak condition.

ÖVAG and Sberbank initially agreed on a takeover sum of 585 million Euros before newspapers revealed last month that the Russian bank refused to fork out more than 500 million Euros for the federal VBI branches. ÖVAG had to accept that Sberbank would not buy the Romanian affiliate because of the dismal state it was in. The Austrian bank headed by Gerald Wenzel and Russia’s leading financial institute found accord about a takeover of VBI’s representations in eight other Eastern European (EE) countries.

Now there are reports that contracts will be signed in Vienna this Wednesday. The sale of VBI is a crucial part of ÖVAG’s course correction. The bank, which has received over 1.1 billion Euros in participation capital from the Republic of Austria since 2008 over fears that it might collapse during the crisis, plans to focus on its core activities.

Around 250 of the employees currently working at ÖVAG branches in Austria will be made redundant in the coming months. This measure means that ÖVAG Austria’s workforce level is set to shrink by 20 per cent. Bank executives promised a social plan for the affected staff to help them reintegrate in the labour market as soon as possible.

ÖVAG may withdraw from operating in leasing and real estate businesses as part of the new austerity concept. Immofinanz AG boss Eduard Zehetner reacted to the news by disclosing that his enterprise would consider buying ÖVAG’s property management subsidiary companies. However, market analysts point out that Immofinanz is more interested in developing properties in EE countries than in snatching up domestic rivals’ real estates.

Some pressure dropped off the shoulders of ÖVAG bosses recently when it was announced that the European Banking Authority’s (EBA) new requirements for Europe’s leading banks would not affect the finance institute. EBA wants the continent’s biggest banks to ensure they have an equity ratio of at least nine per cent by June. The introduction of more stringent capital restrictions should help protect them from the effects of a potential worsening of the economic climate in Europe.

ÖVAG was the only Austrian bank which did not pass EBA’s second stress test. The check was carried out last July. The Viennese finance institute will not have to fulfil the authority’s updated criteria because of the sale of most of VBI’s branches to Sberbank.

The reduction in size caused by the deal means that ÖVAG will not be considered as relevant to the European banking system anymore. ÖVAG officials welcomed the news – but also stressed they would try to create a solid equity ratio nevertheless to be prepared for a roughening of the economic environment.

Experts still fear that Austria would not be financially powerful enough for a successful rescue action if ÖVAG’s condition worsened due to rising public debt and the need for more investment in a fund which should guarantee current standards of healthcare by 2014.