Oesterreichische Volksbanken AG’s dozens of cooperative bank owners will vote on ceding autonomy to their money-losing central body today after Moody’s said more government help would jeopardize Austria’s finances.
Volksbanken, which twice failed European stress tests, is trying to gain support for a planned restructuring from its majority owners in a meeting in Vienna today. The tentative cross-guarantee pact would combine Volksbanken’s and the regional lenders’ capital and liabilities and terminate all Volksbanken business except support functions for those owners. Three of the 62 cooperative banks have balked at a deal.
“We want to have a formal approval for that combination at the meeting,” Volksbanken spokesman Walter Groeblinger said.
Should the vote be approved following months of talks, the merger plan still needs endorsement from shareholders of the 62 lenders, which go back to credit unions founded by craftsmen and small manufacturers as early as 1851. They would give up most of their independence in the new structure while remaining legally separate. Volksbanken’s owners may also discuss the setup of a “wind-down unit” for undesirable businesses, which the Austrian state has said it refuses to nationalize.
The regional lenders own 61 percent of Volksbanken, while Germany’s DZ Bank owns 23 percent, Munich Re owns 9.4 percent, and Raiffeisen Zentralbank Oesterreich AG holds 6 percent. The three dissident regional banks, including Volksbank Tirol Innsbruck-Schwaz AG, have objected to losing their independence and having their capital used to plug holes in Volksbanken’s balance sheet.
Volksbanken is also completed the sale of its eastern European business to Russia’s OAO Sberbank for 505 million euros ($661 million) today. That deal is part of the restructuring that was required to exempt Volksbanken from stricter capital rules issued by the European Banking Authority, which had found a capital shortfall of 1.05 billion euros at the lender.
Austria is under pressure from ratings companies and bond investors concerned about “contingent liabilities” from the nation’s financial-services industry. Standard & Poor’s cut the country’s rating to AA+ last month, citing banking risks. Moody’s lowered its outlook to “negative” in Feb. 13, saying it may cut the nation’s Aaa rating if banks need more aid.
The Alpine nation is already saddled with bad assets Volksbanken ran up through 2008 in its municipal-lending unit, Kommunalkredit, which it co-owned with Dexia SA, the Belgian lender being broken up in the wake of losses. Volksbanken got 1 billion euros ($1.3 billion) of state capital in 2009 after Kommunalkredit was rescued by the state in 2008.
The bank said last year that units equivalent to about half of its 43 billion euros in assets, such as large corporate and real-estate loans, a money-losing Romanian bank and its leasing business, will be sold or terminated.
Some Volksbanken owners proposed that the wind-down unit be taken over by the Austrian government. The finance ministry rejected the proposal, a spokesman said yesterday.
The state is backing Kommunalkredit’s “bad bank,” KA Finanz AG, for years to come as it winds down 24 billion euros of assets including credit-default swaps written on Greece. KA Finanz may need fresh capital this year, depending on the terms under which Greece swaps its debt.
Volksbanken failed to repay 300 million euros of state aid last year and revealed that it will report another loss of at least 825 million euros for 2011. The lender was also found to lack reserves in EBA’s stress tests in July and October.
Among other setbacks, the lender had to reduce the price of the unit it’s selling to Sberbank and replenish its capital as losses in Hungary worsened. Sberbank declined to buy the Romanian unit, which Volksbanken is keeping now. The international business is co-owned by Germany’s DZ Bank and WGZ Bank and by Groupe BPCE in France.
Volksbanken also failed to raise 500 million euros by selling a stake in RZB to shore up its capital after the RZB shareholders who wanted to buy it walked away from a deal.
The bank’s reorganization may be no panacea. Fitch Ratings cut its viability rating for Volksbanken-Verbund, the combination of Volksbanken and its owners, by two steps to bb-from bb+ in January, citing the burden that the restructuring will put on the small cooperative lenders. Fitch said then that it “expects pressure on profitability to persist in 2012.”