Austria’s Failed Kommunalkredit Sale Adds to Fekter’s Bank Woes

Austria, at loggerheads with European regulators about several of its nationalized banks, failed to sell municipal lender Kommunalkredit Austria AG and is halting new business at the bank.

Kommunalkredit, the first Austrian bank to be nationalized in 2008, couldn’t be sold in a “value-preserving” way by Finanzmarktbeteiligung AG, the agency managing Austria’s state aid for banks, the company said in a statement from Vienna today. The European Union had set a sale deadline of the end of June when it approved financial aid for the bank.

“The privatization process brought up several seriously interested buyers, but the offers that were filed were extremely complex, economically hardly attractive, and linked to conditions burdening Austria,” Kommunalkredit said.

Austria told the EU it will stop all new business, let the loanbook run down and seek talks with the 27-member bloc’s antitrust body to determine “economically sensible next steps,” Kommunalkredit said. Competition Commissioner Joaquin Almunia, who is also fighting with Finance Minister Maria Fekter about Hypo Alpe-Adria-Bank International AG, another nationalized lender, would also be entitled to appoint a trustee to sell the bank.

Morgan Stanley

Kommunalkredit, which had 15.8 billion euros of assets and returned to profit last year, had attracted the interest of Oesterreichische Kontrollbank AG and New York-based Apollo Global Management LLC (APO), four people with knowledge of the situation who asked not to be identified said in February. Morgan Stanley was managing the sale.

The bank, previously owned by Oesterreichische Volksbanken AG (VBPS) and Dexia SA (DEXB), was nationalized in November 2008 to avoid a collapse when liquidity dried up. It was split into Kommunalkredit, which continued as a lender to municipalities with a revamped business model, and KA Finanz AG, a “bad bank” that’s winding down securities, loans and credit-default swaps that aren’t part of Kommunalkredit’s main business.

Together, Kommunalkredit and KA Finanz have cost taxpayers 2.6 billion euros of equity-like capital so far. About 6.4 billion euros are additionally at risk because of government guarantees for the lenders’ assets and bonds.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

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

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