Fekter sees possible €1bn bad bank burden

People’s Party (ÖVP) Finance Minister Maria Fekter has admitted that another Austrian bank may need more money.

Fekter told radio Ö1 on Saturday that KA Finanz could have a demand of one billion Euros. The finance institute was created in 2008 as the bad bank of nationalised Kommunalkredit. Fekter’s statement comes shortly after her party and its coalition partner, the Social Democrats (SPÖ), decided to carry out a partial nationalisation of Volksbank AG (ÖVAG). The Viennese bank received around one billion Euros in participation capital from the state throughout the crisis but suffered a loss of the same extent nevertheless in 2011.

ÖVAG sold most party of its international subsidiary bank Volksbank International (VBI) to Russia’s Sberbank for 505 million Euros. Negotiators initially hoped that the Moscow-based bank could transfer around 700 million Euros or more for VBI. Gerald Wenzel’s contract as ÖVAG chief is not expected to be extended as the state’s influence in decision-making procedures of the bank’s executive board is set to increase following the planned purchase of ÖVAG stocks worth hundreds of millions of Euros.

Fekter said on Saturday that a high amount of Greek government bonds held by KA Finanz posed the biggest threat to the nationalised bank’s condition. She also expressed fears about the value of credit default swaps (CDS) owned by the finance institute. Asked whether struggling Hypo Group Alpe Adria (HGAA) will need another capital injection, the former interior minister said this was possible if the bank failed to sell its high-risk business branches. HGAA was nationalised in December 2009.

ÖVAG was the only Austrian bank which failed the European Banking Authority’s (EBA) stress check last year. HGAA’s possible reaction to a further worsening of the economic climate in Europe was not investigated. EBA ordered the continent’s 70 leading banks to jack up their equity ratios to nine per cent until this June as a consequence to the results of its examination.

Erste Bank Group AG (Erste Bank) CEO Andreas Treichl said last week his bank’s equity ratio was 8.9 per cent at the moment. The banker announced he was convinced that Erste Bank would meet EBA’s rules without any difficulties. Economic turmoil in Romania and Hungary resulted in an annual loss of 719 million Euros for Austria’s leading bank last year.

Treichl has warned many times that the stricter equity ratio regulations could keep some banks from providing companies with credits. Speaking to magazine profil, the former Chase Manhattan manager said the finance industry should pay no bonuses at all to managers due to the public’s negative opinion about such proceedings in crisis times.

Asked for his opinion on the SPÖ-ÖVP coalition’s decision to increase the Austrian bank tax, the Erste Bank executive board manager spoke of an understandable step considering political developments and the banking industry’s bad reputation. “It was clear that many people would applaud,” Treichl said after it emerged that SPÖ and ÖVP intended to increase the bank tax by 25 per cent to cover the costs of the partial nationalisation of ÖVAG.