Austria’s Kommunalkredit Gets EU Approval for Closing Lender

Kommunalkredit Austria AG, the Austrian nationalized municipal lender, will have to wind down its loan book and close when that’s complete after attempts to sell the bank failed, the European Commission said.

Kommunalkredit will finance the run-off of its 15.8 billion euros ($20.8 billion) of assets without further aid, the commission said in a statement today. The Vienna-based lender said in a separate statement that it can sell parts of its business. The commission was entitled to appoint a trustee to find buyers for the assets after the failed sale.

“The European Commission has found the run-off of Kommunalkredit Austria AG to be in line with EU state aid rules,” the commission said. “Kommunalkredit will cease new lending, thus not competing on the markets any longer, and ultimately, after the full run down, exit from the market altogether. This will minimize distortions of competition.”

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.

The EU approved a rescue in 2011 under the condition Kommunalkredit be sold by the end of 2012.

Kommunalkredit and KA Finanz have cost taxpayers 2.6 billion euros of equity-like capital between them so far. About 6.4 billion euros more are 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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