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S&P acted 'politically motivated', says OeNB boss

The head of the Austrian National Bank (OeNB) has harshly criticised Standard & Poors (S&P) over its latest decision.

Ewald Nowotny said yesterday (Tues) the US American rating agency’s move – S&P lowered the economic outlook of 15 European Union (EU) countries including Austria on Monday – was "politically motivated". The former BAWAG PSK boss underlined that the European Central Bank (ECB) would not let itself become pressurised by such a step.

Nowotny said he was concerned by developments under which political leaders become increasingly influenced by the opinion of credit rating agencies. The OeNB governor also spoke out about the latest suggestion by German Chancellor Angela Merkel and French President Nicolas Sarkozy. The influential politicians said EU countries caught breaching budget deficit regulations should face certain sanctions. Nowotny described the idea as a "step into the right direction". However, the banker warned that the EU’s most urgent problems would not be solved this way.

Only on Monday, former European Commission (EC) chief Romano Prodi told Austria’s Kurier newspaper that he was "disappointed" in Merkel. The Italian politician said decisions by the chairwoman of the Christian Democratic Union (CDU) "came too late and were insufficient."

Nowotny revealed yesterday that the ECB planned "additional measures" to help banks increase their capital. The Austrian banker, who is a member of the ECB board, did not disclose which measures might be taken to help the finance institutes to brace against the impact of a possible recession.

The continent’s leading banks have been ordered by the European Banking Authority (EBA) to increase their capital ratios by the middle of next year to weather all kinds of serious economic turmoil. The EBA recently carried out a second stress test on the finance institutes’ condition to check whether they would survive in such a scenario.

Nine of the 90 checked banks did not pass the test. One of those which did not make the EBA’s criteria was Austria’s Volksbank AG (ÖVAG). The EBA has been attacked for allegedly failing to closely examine banks’ stability in both of its stress checks since several Irish banks had to be rescued with taxpayers’ money shortly after the first round of tests.

Meanwhile, ÖVAG is expected to stop funding property deals as part of its restructuring process. The debt-stricken bank announced last month it might suffer a loss of 1.2 billion Euros this year. ÖVAG sustained a loss of 689 million Euros between January and September 2011.

Reports have it that the financial institute planned to withdraw from engaging in real estate business. Such a step might help ÖVAG to become more efficient – and avoid bankruptcy. ÖVAG has 1,300 employees in Austria. Business newspapers are speculating that one in two of them may lose their job in the foreseeable future. ÖVAG decided to sell its Volksbank International (VBI) branch to Sberbank in September – despite the Russian bank’s low offer. The Moscow-based bank paid 585 million Euros for all of ÖVAG’s Eastern European (EE) branches except its ailing Romanian affiliate.

Poorly planned expansion in the EE region is seen as the main reason for ÖVAG’s current trouble. Most of Austria’s leading banks have been strongly engaged in EE for many years. The alpine country’s finance institutes were the first international banks to become active in many countries of the region which is seen as an important future market by many analysts – despite the latest warnings about slowing economic growth.

The performance of federal economies in EE could indirectly affect Austria’s credit rating since rating agencies consider the country’s banks’ manifold operations in the region as a risk factor. They warn that the Republic of Austria lacks funds to provide them with enough state capital in case of a serious recession. Austria’s solvency is currently rated with AAA, the highest ranking issued by S&P, Moody’s and Fitch. A downgrade would confront the country with rising interest rates on credits and government bonds.

Austrian Times

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Julia Puaschunder wrote on 15. 12. 2011 from Harvard University about "S&P acted 'politically mo..."

And this is how much the Austrian National Bank cares about Socially Responsible Investment http://harvard.academia.edu/JuliaMPuaschunder/Papers/1221693/Austrian_National_Bank_Conflict_of_Interest_and_Interest_in_Socially_Responsible_Investment_and_Financial_Social_Responsibility

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Euros Nowotny Austrian bank banker Ouml failing business OeNB rating planned region Merkel ndash institutes International European rsquo capital credit

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