Only a few hours after the 100% nationalization of Carinthian bank Hypo Alpe Adria, Austrian taxpayers face another banking disaster. According to documents obtained by the Austrian daily "Die Presse" Austria's three banking supervisory authoritities FMA, Fimbag and the Austrian central bank (OeNB) have silently put Oesterreichische Volksbanken AG (OeVAG), the 4th largest bank of the country, under surveillance, fearing that it may become a casualty of the spreading banking crisis.
None of the 3 supervisory bodies has officially publicized this warning to the public so far, continuing a trend of downplaying the grave situation of this small country's banking sector.
Hiding it under the carpet will certainly not help as institutional investors correctly request timely information and more such blunders by the 3 agencies supposed to monitor the financial stability could wreck the reputation of the Vienna capital market. This blog was unarguably the first voice of concern back in December 2007.
Authorities Looked the Other Way
OeVAG reported an accumulated loss of €607 million in the first 3 quarters of 2009 and authorities - who looked the other way too long and now begin to panic - expect credit writedowns of up to €20 billion, dwarfing the salvage of Hypo Alpe Adria which will cost taxpayers at least €450 million. OeVAG's balance sheet currently stands at €53 billion.
As blogged earlier this year, OeVAG will most likely not be able to pay a 9.3% coupon on €1 billion state-injected subordinated capital it received at the beginning of 2009. This will leave another €186 million gap in the finance ministry's empty coffers.
According to the Fimbag letter OeVAG's business deterioration has become a concern this year. The letter was signed by former OeNB Governor Klaus Liebscher and his Ex-CEO Adolf Wala who are trying to keep most Austrian banks alive.
So far only small Constantia Privatbank has gone under in Austria in 2008 but it is clear to industry insiders that the days of burgeoning business are over and the sector needs to shrink.
According to Fimbag the bank should look out for a strategic partner as both its 25% shareholder DGZ Bank and 6% shareholder Raiffeisen Zentralbank will most likely not take part in an equity issue to the tune of €400 million in 2010.
Given the unfolding scandal at Hypo Alpe Adria where both authorities and the public only begin to ask where the hell more than €3 billion went it is likely that potential bidders may push away the hot potato called OeVAG.
Nationalize, Nationalize - Let the Sovereign Pay the Bill
Recognizing the harsh reality Fimbag recommends to burden Austrian taxpayers with the irresponsible losses of OeVAG by nationalizing a part or the whole group.
It is ironic that Finance Minister Josef Pröll, a member of the conservative Volkspartei finds himself in the role of a socialist, dividing bank's losses between Austria's 4 million taxpayers. It was his party that drove the privatization wagon in the last 25 years, selling more or less all of Austria's silverware. Now the country finds itself in the poor house, with only bits of infrastructure in the hands of the sovereign left.
Add the usual global picture - rising unemployment and social transfers crash head on with lower tax revenues - and I am standing by my opinion that one should not be so mad as to own Austrian bank shares.
Authorities have always been too late on the scene of the few bank closures Austria saw since WW2.
The results of a recent "stress test" are not exactly encouraging. Citing OeNB executive Andreas Ittner Die Presse wrote that one big bank, presumably Hypo Alpe Adria, and 30 smaller banks failed the test. Another big bank, one does not have to guess that it is OeVAG, was close to failure, he said.
The recent troubles had at least one positive effect: OeNB governor Ewald Nowotny now expects no stone to be left unturned in the medium term future. Nowotny may finally improve his so far 100% wrong track record and realize that a collapse of the Austrian banking sector, laden with 20% of all Central Eastern European (NYSE:CEE) risk, may lead to spontaneous social unrest in this peaceful country. Nowotny is a dyed in the wool social democrat.
Former social democrat Finance Minister Hannes Androsch, now an industrialist with his own CEE problems, had told the paper earlier that Austria needs to shrink its banking sector. "Austria has six systemic relevant banks and Switzerland has only two," he said.
No Problems At the Listed Banks?
It is a most interesting fact that media reports have not yet touched the real situation at Austria's 2 listed banks, Erste Group (OTCPK:EBKDY) and Raiffeisen Group (OTC:RAIFF). With a cloudy outlook at best both banks have yet do digest huge writedowns within their CEE activities. Are there more hot potatoes rolling around in the chilly climate of Austria's banking world? I bet so!
While Austrian business style is historically very focused on harmony the inevitable blood-letting in the sector will most probably lead to a dog-eat-dog panic within the next 24 months. The government has so far announced €100 billion in bank deposit guarantees in order to keep wealthy foreign clients who enjoy the Austrian bank secret law. This would be €12,500 for each Austrian. It may come worse, though: Bloomberg reported in June that internal EU papers obtained in Brussels put the total risk closer to €165 billion or more than €20,000 for every breathing inhabitant.
Disclosure: No positions related to Austria.