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Austria Tells Volksbanken to Restructure Soon, Sees No State Aid

Austria’s FMA banking regulator said it expects Oesterreichische Volksbanken AG, a lender that failed stress tests, to execute its restructuring plans in the next few weeks without resorting to a second helping of state aid.

Regulators are most eager to see Volksbanken complete the sale of most of its eastern European business to Russia’s OAO Sberbank and implement a cross-guarantee arrangement with its regional cooperative owners, FMA co-chairman Helmut Ettl told journalists late yesterday.

“Those are the steps we’re expecting immediately,” Ettl said during a briefing with his co-chairman Kurt Pribil. “We expect that this is being worked on at full speed.” The measures are “important steps to reduce the systemic relevance” of Volksbanken, he added.

Volksbanken was among eight banks that failed the European Banking Authority’s stress tests in July. The EBA said on Dec. 9 that the lender had a capital shortfall of 1.05 billion euros ($1.38 billion). The EBA said that the loss was “pro-forma” as Volksbanken’s restructuring will make the bank too small to be among those lenders tested in June 2012.

The bank is on track for a loss exceeding 825 million euros this year due to writedowns and bad loans. That comes after a 55.4 million-euro profit in 2010 and a 1.1 billion-euro loss in 2009, the year in which the bank received 1 billion euros in state aid.

Bolster Capital

Volksbanken is 61 percent owned by 62 cooperative banks. Under the restructuring plan, modeled on Dutch cooperative lender Rabobank Groep NV, Volksbanken and its owners would promise unlimited guarantees on their liabilities. The plan would bolster Volksbanken’s capital ratio, a measure of financial strength, because it would allow it to consolidate the capital of its owners.

“We expect that the Volksbanken will bundle its internal resources and will put a solution on the table,” Pribil said.

While Volksbanken won’t make a profit on the asset sale to Sberbank, the deal will still help its capital ratio by reducing the lender’s risk-weighted assets.

German cooperative lender DZ Bank owns 23.4 percent of Volksbanken, a Munich Re unit owns 9.4 percent, and Raiffeisen Zentralbank Oesterreich AG owns 5.7 percent.

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