09. 12. 11. - 15:41

EBA check causes Erste Bank trimming

Austria’s biggest bank has revealed plans to reduce its workforce level in Hungary.

Andreas Treichl, who heads Erste Group Bank AG (Erste Bank), said today (Fri) the finance institute would employ 400 to 450 fewer people in the coming years. The banker did not say whether staff would be sacked. Experts think that the bank might try to offer golden handshake deals to redundant employees. Erste Bank is also expected to abstain from replacing retiring staff.

Treichl pointed out that Erste Bank would not withdraw from doing business in Central and Eastern Europe (CEE). The Vienna-based bank is one of the biggest investors in the region. It dominates the banking sector in several Eastern European (EE) countries. Treichl said Erste Bank would carry out "restructure and re-dimension procedures" at its Hungarian subsidiary company. He explained some of its 43 branches in the country – which joined the European Union (EU) in 2004 but did not introduce the Euro – might be closed.

The Erste Bank chief’s announcements come just one day after the European Banking Authority (EBA) informed his bank that it lacked 743 million Euros. EBA investigators found that Erste Bank must increase its equity by this amount to meet the latest rules affecting the core tier 1 capital ratios of Europe’s leading banks. EBA authorities carried out a third stress test on the leading banks of the continent in the past weeks. The organisation presented its results yesterday evening. EBA said banks based in Germany, Spain, Italy, France and Germany must show the greatest efforts to match its stricter regulations until the middle of next year.

Erste Bank’s current capital ratio is 8.4 per cent, according to the EBA. The financial market watchdog wants the 71 biggest banks in Europe to ensure a rate of nine per cent to be better prepared for possibly upcoming economic turmoil. Erste Bank must inform the Austrian National Bank (OeNB) until 20 January how it intended to raise its capital.

Treichl said he was convinced that Erste Bank would manage to meet the criteria without asking the state for a cash injection. He also said that continue doing business in Hungary and other economically challenged CEE states was one of his bank’s basic principles. "We will stay true to this region," he told reporters today. The Erste Bank chief said he felt responsible ensuring that his bank kept providing people and companies in crisis-stricken countries with capital and services.

Treichl estimated Erste Bank’s extra need for capital at 750 million Euros last month before EBA’s order to increase the equity by 743 million Euros. The banker came under fire when it emerged that Erste Bank managed large amounts of credit default swaps (CDS) without considering these activities in its books. The poor performance of these CDS deals were one of the reasons why the bank suffered a loss of 1.49 billion Euros in this year’s third quarter.

Treichl warned that Erste Bank might be in the red by the end of this year – and announced that the bank’s executive board decided to repay parts of its bonuses for 2010. Only in May, some Erste Bank shareholders turned their guns on Erste Bank decision-makers when it emerged that the annual incomes of member of the financial institute’s supervisory board was doubled from 2009 to 2010 to 700,000 Euros.

The CDS issue was not the first controversy which cast a shadow on Treichl’s credibility. The banker caused public outcry and a heated debate half a year ago when he claimed that lawmakers were "too stupid" to understand economic developments. Treichl referred to European politicians’ decision to set up the strict Basel III law which might make providing credits to companies more difficult for banks.

He also attacked the Austrian government of Social Democrats (SPÖ) and the People’s Party (ÖVP) for showing outspoken support for the Basel III project. Polls disclosed that a majority of Austrians were of the same opinion as Treichl. The Austrian government coalition was less pleased by Treichl’s harsh attack. The banker eventually apologised for his choice of words and said that "it seems some emotion is needed to start a discussion about an important topic."