Volksbanken Says Revamp Will Cause Losses Until 2016

Oesterreichische Volksbanken AG (VBPS), the lender rescued by Austria last year, said winding down its troubled assets will cause losses until at least 2016.

“It’s become apparent in the current process of developing our mid-term planning that we have to expect a negative result on the unconsolidated level at least until the end of the 2015 business year,” Volksbanken said in an e-mailed statement today. It will have “significant” losses this year on the group level as well, the lender said.

Volksbanken had a net loss of 67 million euros ($91 million) in the nine months through September, caused by further writedowns to its wind-down portfolio, according to the statement. Total assets shrunk by 6.2 percent to 23.3 billion euros since the end of June. That reduction helped its tier 1 ratio, a gauge of financial strength, to rise to 13 percent from 11.4 percent three months earlier.

Volksbanken is one of the six Austrian banks whose assets will be examined by the European Central Bank over the course of the next year.

Austria has bailed out Volksbanken three times since its decade-long, five-fold balance sheet expansion began unraveling in 2008. The Alpine republic has 300 million euros of non-voting capital left in the bank and a 43 percent equity stake bought for 250 million euros. The government already wrote down 700 million euros of capital injected into the bank.

The continued losses mean Volksbanken won’t pay interest on supplementary capital until 2016, it said. The bank has a total of about 90 million euros in such debt outstanding after most of it was swapped into new instruments this year, spokesman Walter Groeblinger said by telephone.

The Vienna-based lender won EU approval for the government support in September 2012 by agreeing to sell or wind down more than a third of its assets. It will focus on the support of local cooperative banks, its main shareholders, and get rid of its loss-making corporate and real estate financing as well as subsidiaries outside of its core business.

Volksbanken will pursue the sale of its leasing business and its Malta unit in the fourth quarter, it said.

To contact the reporter on this story: Alexander Weber in Vienna at aweber45@bloomberg.net

To contact the editor responsible for this story: Mariajose Vera at mvera1@bloomberg.net

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