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ÖVAG losses soar

Volksbank AG (ÖVAG) suffered losses of more than 1.3 billion Euros last year.

Bank officials announced yesterday (Thurs) that the Viennese finance institute sustained a loss of 1.34 billion Euros in 2011. The news means that the Republic of Austria is robbed of its chances to demand the one billion Euros of participation capital back which it poured into the struggling bank in the past years.

ÖVAG made losses of around 1.1 billion Euros in 2009 and 1.2 billion Euros the following year. The Austrian government coalition of Social Democrats (SPÖ) and People’s Party (ÖVP) decided to partially nationalise ÖVAG in February. The move will be finalised later this month.

The coalition’s decision means that the state is set to increase its stake in the ailing bank dramatically. Finance State Secretary Andreas Schieder of the SPÖ and ÖVP Finance Minister Maria Fekter agreed to raise Austria’s share to 43 per cent. At the same time, the bank’s capital will be increased through public funds to stabilise its position on the financial market.

ÖVAG is currently headed by Gerald Wenzel. The banker’s contract as CEO will not be extended, according to reports. This would mean that Wenzel – who lacked international experience on the financial sector before taking over as CEO three years ago – leaves the bank within the coming weeks. Former BAWAG PSK (BAWAG) manager Stephan Koren might become new boss of ÖVAG.

Wenzel succeeded Franz Pinkl who is blamed by business magazines for masterminding what allegedly turned out to be a poorly planned and careless expansion. ÖVAG headed eastwards as many other Austrian financial institutes several years ago. Soaring losses and plunging profits of its subsidiary banks in Eastern Europe (EE) forced ÖVAG to sell Volksbank International (VBI).

Russian bank Sberbank acquired all but one of the nine VBI sections shortly before the Austrian government decided to partially nationalise ÖVAG. Sberbank transferred 505 million Euros but refused to take over VBI Romania. Immense losses of the Bucharest-based institute, the revaluation of affiliate Investkredit and Greek government bonds and other factors led to ÖVAG’s loss of 1.34 billion Euros in 2011.

Bank Austria (BA) head Willibald Cernko recently welcomed the government’s plans to create a bank bankruptcy law. Cernko said the case of ÖVAG "is not a glorious chapter. The state should have got involved much earlier." The BA chief criticised for not being contacted by the government at any stage of the partial nationalisation of ÖVAG despite the need to fork out more in bank taxes.

Fekter made clear that the SPÖ-ÖVP government planned to partially compensate the state’s expenses caused by the troubles of ÖVAG through an increase of the bank solidarity tax. The finance minister said the plan was to rake in 625 million Euros in 2012 following last year’s bank tax income of 500 million Euros.

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