Austria should consider warehousing risky and non-performing assets of its nationalized lenders in a vehicle that isn’t governed by banking laws, according to Klaus Liebscher, the manager in charge of the nation’s bank aid.
Putting toxic assets of rescued banks into a state-backed body without a banking license may have advantages for Austrian taxpayers, Liebscher said in an interview last week. Such a model would mimic Germany’s FMS Wertmanagement, the agency that is winding down 176 billion euros ($221 billion) of assets from nationalized Hypo Real Estate Holding AG.
“To work out a model like the German one, without a banking license, is a debate that could be worthwhile in my view,” said Liebscher, who heads the Finanzmarktbeteiligung AG agency. “It’s possible that you create options for the wind-down bank which in the end will benefit taxpayers. I wouldn’t rule out that the advantages predominate.”
Austria nationalized two banks in 2008 and 2009 and partially took over another one this year to prevent their collapse. The nation had to inject fresh capital into all three lenders to make sure they meet regulatory requirements after losses on bad debt and on swaps depleted reserves. All major ratings companies have warned the government that its banks are the biggest risk to the Alpine republic’s credit rating.
Hypo Alpe-Adria-Bank International AG, which Austria rescued after former owner Bayerische Landesbank walked away in 2009, may need about 1.5 billion euros in state aid by October to meet regulators’ capital requirements. That’s after taxpayers already injected 1.35 billion euros.
The government has also paid a net 1.9 billion euros into KA Finanz AG, the “bad bank” of nationalized Kommunalkredit Austria AG, in order to keep its capital ratio at 7 percent as promised. More than half of it was needed after losses caused by Greece’s debt swap. On top of that came a 250 million-euro capital support for Oesterreichische Volksbanken AG this year, which followed a first tranche of 1 billion euros in 2009 and resulted in Austria holding 43 percent of the bank.
Germany’s FMS operates as a government agency without a banking license and is therefore exempt from capital rules for banks. This also means that it can’t borrow from the European Central Bank and is refinancing in the market with the help of a blanket state guarantee for its bond issues.
The key difference between the two approaches is what they mean for a country’s budget. FMS’s liabilities are counted as government debt under European Union rules, while the Austrian bad banks’ debt is not. On the other hand, capital injections for the Austrian bad banks increase the budget deficit, while FMS’s losses are budget-neutral.
Austria’s debt stood at 217.4 billion euros at the end of last year, or 72 percent of gross domestic product, according to the statistics office. While that’s above the EU’s debt ceiling of 60 percent, it is beaten only by the Netherlands, Finland and Spain among major euro-area nations. The aid for KA Finanz because of its Greek losses will add to this year’s deficit, which the government plans to keep below 3 percent nevertheless, after 2.6 percent last year.
KA Finanz had total assets of 14.9 billion euros as well as contingent liabilities of 10.5 billion euros at the end of 2011, according to its annual report. Hypo Alpe’s “wind-down” unit has 10 billion euros of assets.
Austrian Finance Minister Maria Fekter has in the past rejected proposals for such a model. She told journalists earlier this week that such plans would have to be approved by the EU, and that Austria wasn’t seeking such approvals currently.