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Austria Gave Away Taxpayers’ Upside in Bank Aid, Auditors Say

Austria missed out on recouping tax-payer money given to ailing banks because it chose to invest in non-tradeable securities rather than common shares in all but the most hopeless cases, the state audit court said.

Austria can only earn fixed fees and dividends for most of the capital it injected into its banks, while carrying the risk of losing it all, the Rechnungshof audit court, a parliament-appointed body supervising the government’s spending, said in a report today. The U.S. government, by buying shares in banks it rescued, gained the option of benefiting from higher share prices, and managed to realize those gains, the court said.

“The government took on the risks caused by possible economic emergencies, but it didn’t get any chance in return to participate in a possible recovery of the credit institutions it rescued,” the Rechnungshof said in the report. Future rescue measures “should achieve a fairer burden sharing in a financial crisis between bank investors and shareholders on the one hand, and taxpayers and citizens on the other.”

Similarly to Germany and France and in contrast to Britain and the U.S., Austria supported banks it considered “fundamentally sound” through non-voting, non-tradeable securities that pay a fixed dividend and bear losses like equity. It nationalized only those three banks that were teetering on the brink of collapse.

Participation Capital

Erste Group Bank AG, Raiffeisen Bank International AG, and Bawag PSK Bank AG all received so-called participation capital. While they are paying dividends, none of them has repaid the funds yet. Erste and Raiffeisen both trade at more than twice their Feb. 2009 lows, which they hit shortly before they announced to get 1.22 billion euros ($1.57 billion) and 1.75 billion euros in state capital, respectively.

Kommunalkredit Austria AG, KA Finanz AG, Hypo Alpe-Adria-Bank International AG and Oesterreichische Volksbanken AG were all nationalized to prevent their collapse. The government has already written down the first round of rescue funds invested in all of them.

Austria’s 2008 bank stability package originally allocated 15 billion euros for equity-like measures and 75 billion euros to guarantee bonds. The Rechnungshof’s study investigates the period through June 2011, leaving out the part-nationalization of Volksbanken agreed in February, and the capital measures at KA Finanz agreed in March. In that period, Austria’s aggregated loss was 681.6 million euros, it said.

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