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Volksbanken Says Owners May Have to Merge Under Pact

Oesterreichische Volksbanken AG may have gained the upper hand over its owners under an agreement reached when local credit cooperatives asked Austria to rescue their central institute earlier this year.

Volksbanken, majority-owned by the 62 local lenders, is now linked to them in a cross-guarantee pact that the government demanded in return for the bailout. The deal allows Volksbanken to give the local lenders instructions including to combine their businesses, Stephan Koren, the bank’s new chief executive officer, told journalists yesterday.

“If we’re saying we need to work as cost efficient as possible, there will have to be mergers,” Koren said about discussions he’ll lead with his local owners. While he can’t give direct orders, Koren has “instruments to exert pressure” when banks miss internal targets or violate risk-management rules set centrally, Koren said.

Austria in February agreed to partially nationalize Volksbanken in the lender’s third bailout since 2008. The country has more banks, bank branches and bank employees per capita than most euro-area countries, leading to increased competition, higher costs and lower margins in the domestic business, according to the central bank. The last major merger between two Austrian banks was Bawag’s purchase of PSK, which was completed in 2005. Most of the country’s big banks, such as Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA’s Bank Austria, have operations in eastern Europe, which bolster profits at home.

Talks about possible mergers between some of Volksbanken’s owners are under way and may also lead to a lower number of branches, Koren said. The local cooperative banks have 550 branches in Austria. Volksbank Wien AG, Volksbank Salzburg eG, Volksbank Vorarlberg eG and Volksbank Tirol Innsbruck-Schwaz AG are among the biggest of Volksbanken’s local owners.

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