EU’s Almunia ‘Surprised’ Austria Didn’t Warn on Volksbank Nationalization

The European Commission was “surprised” Austria didn’t warn it about plans to bail out Oesterreichische Volksbanken AG (VBPS), according to Joaquin Almunia, the region’s commissioner responsible for approving state aid.

“We have been dealing with this bank for quite some time now,” Almunia said in an interview with Bloomberg HT television in Istanbul. “We were a little bit surprised by some new decision that had not been communicated to us before” even though the EU is already probing the legality of the state aid Volksbanken has already received.

Austria is due to become Volksbanken’s second-biggest shareholder after it agreed to write off most of its previous aid and to inject fresh funds to shore up capital diminished by losses at the nation’s fourth-biggest lender. The additional aid came less than three months after the EU said it had doubts that Volksbanken’s bailout three years ago complied with EU law.

The EU opened a probe on Dec. 9 into Austria’s state aid to Volksbanken in 2009, when it injected 1 billion euros ($1.32 billion) into the bank. That capital boost, which followed the bailout in 2008 of its Kommunalkredit Austria unit, may violate European state-aid rules, the EU said in a statement at the time. It also demanded a new restructuring plan for the bank.

“Serious doubts remain” on whether the bank will be viable in the long term, the European Commission, the EU’s executive arm, said in its letter dated Dec. 9 and published in the region’s Official Journal Feb. 17. It also questioned whether “sufficient burden-sharing is achieved” between the bank, its shareholders and the government, and whether “adequate measures are taken to limit distortions of competition.”

‘Sound’ Lender

Austria told the EU that Volksbanken was a “sound” bank in 2009, the year for which the lender reported a net loss of 1.1 billion euros, according to the EU letter. That label means a bank receiving state aid doesn’t have to provide a wide- ranging restructuring plan. The Alpine country had said previously that Hypo Alpe-Adria-Bank International AG was a sound bank in 2008, a year before it was nationalized to prevent it from collapsing under 1.6 billion euros of losses.

The EU rejected the classification for Volksbanken and said a 2010 restructuring plan is insufficient and must be amended.

Under the new bailout agreement reached last week, Austria will get a stake of as much as 49 percent and an option for a majority after it injects 250 million euros by purchasing shares. Volksbanken’s shareholders and the state’s previous aid will be reduced by 70 percent to wipe out accumulated losses.

Volksbanken’s majority owner, a group of 62 regional cooperative lenders, will also have to put in at least 230 million euros of fresh capital to keep its stake above 50 percent. Other shareholders including DZ Bank and Munich Re will have their stakes diluted.

To contact the reporters on this story: Josh Bassett in Istanbul at jbassett2@bloomberg.net; Sibel Akbay in Istanbul at sakbay@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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