01. 12. 11. - 12:17

Cash-strapped ÖVAG could exit real estate financing

One of Austria’s leading banks may pull out of property deals in a desperate attempt to avoid bankruptcy.

Volksbank AG (ÖVAG) chiefs informed shareholders about its negative performance of the past months yesterday (Weds). The Viennese financial institute sustained a loss of 689 million Euros in the first three quarters of this year. ÖVAG braces for an annual loss of 1.2 billion Euros.

ÖVAG bosses have not yet disclosed any information on whether there was agreement about a further restructuring measure – but reports have it that the bank could stop engaging in the financing and developing of real estate projects.

Managers of the bank also kept tight-lipped about how much additional capital was needed to meet the European Banking Authority’s (EBA) requirements on Europe’s biggest banks. The organisation wants the continent’s busiest banks to increase their equity ratio to nine per cent until mid-2012.

ÖVAG was one of nine banks which did not pass EBA’s most recent stress test. The investigation’s results were announced in July. Ninety finance institutes from European Union (EU) member countries and Norway were examined in the test. Experts tried to find out whether the banks were strong enough to weather a significant worsening of the economic climate.

Austrian business press are speculating whether ÖVAG could become the third Austrian bank within three years to be nationalised after Kommunalkredit and Hypo Group Alpe Adria (HGAA). These finance institutes were taken over by the state when it became evident that they could collapse under their enormous debts.

Around half of ÖVAG’s 1,300 Austrian staff may lose their jobs if the bank decides to carry out drastic cutbacks on its structure. A scaling down to its core business activities such as private banking is understood to be the final chance to avoid going bust.

ÖVAG hoped to rake in around one billion Euros by selling its Eastern European (EE) Volksbank International (VBI) subsidiary firms. However, Russia’s Sberbank eventually offered only 585 million Euros for the Austrian bank’s affiliates in eight EE countries. Sberbank refused to take over ÖVAG’s ailing Romanian branch – and recently asked ÖVAG officials for a discount on the price for the other federal departments due to the negative development of ÖVAG and the financial crisis.

Austrian Finance Minister Maria Fekter of the People’s Party (ÖVP) – which forms a government coalition with the Social Democrats (SPÖ) – called on the ÖVAG board already in October to present a "credible plan for a substantial restoration."

The bank, which has been headed by Gerald Wenzel since 2009, received one billion Euros of so-called participation capital from the state in the past three years. The government hopes that the measure would help the struggling finance institute to get back in the black.

Other Austrian banks were given money by the Republic of Austria as well throughout the current crisis. Their intense operations in EE are widely seen as a risk factor to Austria’s top solvency rating AAA. Rating agencies reportedly consider lowering the country’s outlook because of setbacks the EE region’s economy sustained in the past months.