Austria’s Bank Woes Multiply as Failed Sale Adds to HypoBoris Groendahl
Austria told the European Union it wasn’t able to sell municipal lender Kommunalkredit Austria AG, opening a new front in its struggle with the bloc’s state-aid watchdog about how to deal with fallen banks.
Kommunalkredit, the first Austrian bank to be nationalized in 2008, couldn’t be sold in a “value-preserving” way by Finanzmarktbeteiligung AG, the agency managing Austria’s bank rescues, the company said in a statement from Vienna today. The lender will stop new business while Austria seeks talks with the EU about how to proceed. The EU had ordered a sale by the end of June when it approved aid.
“The privatization process brought up several seriously interested buyers, but the offers that were filed were extremely complex, economically hardly attractive, and linked to conditions burdening Austria,” Kommunalkredit said.
The failure to sell Kommunalkredit, with 15.8 billion euros ($20.3 billion) of assets, comes as EU Competition Commissioner Joaquin Almunia is already at odds with Finance Minister Maria Fekter about Hypo Alpe-Adria-Bank International AG, another nationalized lender. Almunia, who’s pressing for a fast break-up and shutdown of Hypo Alpe, would be entitled to appoint a trustee to sell Kommunalkredit.
The decision to stop new business “doesn’t mean the bank will be shut down,” Chief Executive Officer Alois Steinbichler said in a telephone interview. Options that remain include new attempts to sell the bank or part of it, Steinbichler said.
Kommunalkredit, which returned to profit last year, had attracted the interest of Oesterreichische Kontrollbank AG and New York-based Apollo Global Management LLC, four people with knowledge of the situation who asked not to be identified said in February. Steinbichler declined to say which bidders have been in the running. Morgan Stanley was managing the sale.
The bank, previously owned by Oesterreichische Volksbanken AG and Dexia SA, was nationalized in November 2008 to avoid a collapse when liquidity dried up. It was split into Kommunalkredit, which continued as a lender to municipalities with a revamped business model, and KA Finanz AG, a “bad bank” that’s winding down securities, loans and credit-default swaps that aren’t part of Kommunalkredit’s main business.
Together, Kommunalkredit and KA Finanz have cost taxpayers
2.6 billion euros of equity-like capital so far. About 6.4 billion euros are additionally at risk because of government guarantees for the lenders’ assets and bonds.
The Kommunalkredit sale was managed by Klaus Liebscher, the president of Finanzmarktbeteiligung and a former Austrian central bank governor. Liebscher is also heading a task force seeking to strike a deal with Almunia on Hypo Alpe, which is active in southern Austria, Italy and the former Yugoslavia and got 2.2 billion euros of state aid since 2008.
Kommunalkredit’s risky and non-performing assets were already spun off into KA Finanz and are largely reflected in the nation’s budget, and risks for taxpayers posed by the failed Kommunalkredit sale are limited. Liebscher said he expected to preserve most of the 250 million euros of equity Austria has injected into Kommunalkredit.
By contrast at Hypo Alpe, as much as 16 billion euros, or about 5 percent of the nation’s economic output, may be at risk for taxpayers in an insolvency scenario, according to central bank calculations.