State saves another bank from bankruptcy

The Austrian government has decided to partly nationalise one of the country’s biggest banks.

Negotiators – including People’s Party (ÖVP) Finance Minister Maria Fekter and Social Democratic (SPÖ) State Secretary Andreas Schieder – announced yesterday evening (Mon) that the state would increase the small share it was currently holding in Volksbank AG (ÖVAG) to 49 per cent.

ÖVAG bosses accepted the government’s demand to be allowed to decide about the future strategy of the bank’s 62 regional branches. SPÖ and ÖVP also ordered ÖVAG to keep restructuring its network to lower costs and get in shape for a possible takeover by a competitor.

The deal is the third nationalisation of an Austrian bank since the first wave of the economic crisis swept across the country in 2008. Klagenfurt-based Hypo Group Alpe Adria (HGAA) and Viennese bank Kommunalkredit were also taken over by the state instead of letting them go bankrupt.

ÖVAG’s regional partners have one million customers in Austria. The bank is doing comparably well in private banking but failed in trying to become one of the country’s leading real estate financiers. ÖVAG chiefs recently presented plans to sell the finance institute’s real estate operations department and its leasing branch to fully focus on private banking. Now as the state is in charge of crucial decisions, they are expected to speed up in doing so.

ÖVAG sustained a loss of 1.2 billion Euros last year despite receiving around one billion Euros of participation capital from the state since 2008. The government coalition’s decision to rescue the bank from ruin results in costs of more than one billion Euros since ÖVAG admitted being unable to pay back most of the money it received during the global debt and credit crisis.

ÖVAG did better in 2010 when it achieved a profit of 55 million Euros – which followed losses of nearly 1.1 billion Euros in 2009. The bank runs 540 branches in Austria. It is headed by Gerald Wenzel who agreed with bosses of Russian bank Sberbank earlier this month about a takeover of all but one of ÖVAG’s international affiliates.

ÖVAG accepted Sberbank’s offer of 505 million Euros for eight Volksbank International (VBI) departments. They hoped to earn more than 700 million Euros in the deal before agreeing with Sberbank about what is widely seen as a good bargain for the Moscow-based institute. Sberbank managed to lower the takeover price by almost 100 million Euros in the weeks leading to the acquisition’s finalisation. The bank made aware of the weak condition of the European economy and some of VBI’s branches, especially its Hungarian subsidiary company.

Sberbank refused to take over VBI Romania due to the bank’s dire state. Experts think that ÖVAG will find it hard to sell the struggling affiliate. Sergey Gorkov, the deputy head of Sberbank’s executive board, recently said his bank had no plans to relocate VBI’s headquarters from Vienna. Gorkov explained the plan was to increase its workforce level. Gorkov also announced that Austrian businessman Siegfried Wolf would become the chief of VBI’s supervisory board.