Bank bankruptcy law planned

The government intends to change Austria’s insolvency regulations to loosen protective factors banks have so far benefited from.

Several bankers – including Andreas Treichl, the head of market leader Erste Bank Group AG (Erste Bank) – have spoken out in favour of a reform of the financial sector bankruptcy law. Austrian law fails to feature precise rules which determine under which circumstances a bank can opt for a controlled bankruptcy. Other private economy companies can choose organised insolvency proceedings to avoid being torn apart by shareholders and investors after it emerged that they might not manage to become profitable ever again.

Now Social Democratic (SPÖ) Finance Secretary Andreas Schieder said his party and its coalition partner, the conservative People’s Party (ÖVP), decided to nominate “renowned financial sector personalities” to work on concepts for an insolvency law for banks. Schieder said yesterday (Weds) the law could be formulated by summer and passed in parliament in autumn.

The state secretary claimed that the state was currently kept out from interfering at struggling banks for too long. Schieder said the plan was to create a law similar to regulations which had been in effect in several other countries for a long time. The Social Democrat explained that the SPÖ-ÖVP coalition wanted to get involved in decision-making processes at debt-stricken financial institutes sooner. He said such changes could help challenged banks in avoiding bankruptcy before the state got forced to take over – and pump hundreds of millions of Euros into the indebted finance institutes.

The government decided only last month to partially nationalise Volksbank AG (ÖVAG). The bank sustained a loss of around one billion Euros last year. Its rescue costs the country around as much. Schieder explained yesterday that the Republic of Austria would increase its stake in ÖVAG to 44 per cent. Analysts expected the government to opt for an increase to 49 per cent.

Speaking about the plan to reform Austria’s insolvency regulations and expand existing rules from the real economy to the financial sector, Schieder said SPÖ and ÖVP decided to become active instead of waiting any longer for an overdue directive by the European Union (EU). The state secretary argued similarly when he tried to justify the decision to approach the Swiss government for bilateral talks regarding Austrians’ money on Swiss bank accounts.

The SPÖ-ÖVP coalition caused controversy by adding the envisaged taxation agreement with Switzerland in the latest budget consolation package. The Austrian government hopes to rake in one billion Euros by issuing a charge of 19 to 34 per cent on the assets Austrians stashed in Switzerland in 2013 and 50 million Euros a year from 2014.  Experts pointed out that it was more than uncertain if the agreement would ever be finalised, let alone in time for revenue of such extent in next year.

Schieder admitted towards magazine profil he was highly sceptical regarding such an initiative at the start since people’s anonymity would be secured. Schieder and ÖVP Finance Minister Maria Fekter eventually agreed that a rise in tax revenue mattered more than certain moral aspects.

Financial sector researchers said it was impossible to say how much money Austria could make this way since the government’s estimations were loosely based on the predictions of the German government which already managed Switzerland to cooperate concerning the issue. However, the German-Swiss agreement is currently on hold due to objections by the European Commission (EC) which keeps campaigning in favour of international anti-tax evasion partnerships coordinated by the EU.