Volksbank’s cooperative credit shareholders will contribute EUR230 million to the new share capital increase and will retain control, while the Vienna government will hold 49% of the bank’s capital. The Austrian state has announced it wants to sell its stake in Volksbank by 2017.
Volksbank needs money despite securing more than half a billion euros from selling its Central and Eastern European operations to Russia’s Sberbank. The Romanian subsidiary was not part of the transaction, but continues to be on the “for sale list” of the Austrian group, which is waiting for things to settle down in order to find a good offer.
“After three difficult years of remodeling the business, today we have created a platform for Volksbank’s sustainable development. The bank’s liquidity has already significantly improved after the sale of the international division, and after the capital increase decided recently the situation will improve even further,” said Gerald Wenzel, CEO of the Volksbank group.
Volksbank holds in Romania a bank with EUR4.7 billion in assets, but which posted massive losses in the past two years directly impacting the Austrian group, which was forced to come up with money to increase the share capital of the local subsidiary.
Recently the Austrian group brought EUR86 million to the capital of Volksbank Romania and decided to extend several credit lines.
Governments around the world and central banks have taken exceptional measures to save banking systems prone to severe financial crisis in the past three years, but the question is if the state needs to intervene even if one single bank is in difficulty, or how many times the authorities are supposed to save an ailing bank.
“A bank can be saved several times by the state until the economic context is consolidated enough that the fall of a bank does not cause waves. The criterion is certainty that the financial system will not suffer from contagion,” says Radu Craciun, investment manager of Eureko Pensii pension fund manager.
One of the arguments in favor of the state intervening to rescue the financial sector was that some banks are “too big to be left to fail” or “too interconnected to be left to fail,” because potential bankruptcies would entail huge risks for the financial system.
“I wouldn’t say Volksbank is too big to be left to go bankrupt, but it is big enough. Since this is not a small bank, there probably have been fears of a domino effect. We live in a time when everyone is still nervous, and the eurozone is far from being stable. Everyone is afraid of lighting a match,” Craciun said.
The Austrian government adopted a EUR100 billion plan to support the banking system in 2008, which included guarantees for liabilities, loan extensions, and capital injections.
Volksbank and Hypo Alpe Adria Bank were the credit institutions that caused the biggest damages to the budget of the Austrian state. The Austrian government injected EUR1 billion in 2009 in Volksbank in order to amortize its losses.
Among the measures to be implemented over the coming period is the commitment of minority shareholders to keep their exposure to Oesterreichische Volksbanken, including the financing granted to Volksbank Romania by DZ Bank.
The local subsidiary is held through an Austrian investment vehicle by Oesterreichische Volksbanken (51%), DZ Bank (Germany) and Banque Populaire (France) – with 24.5% of the shares each.
The sale of Volksbank Romania and of VB Leasing remains on the list of planned measures, but this will be done in a way that is advantageous for Oesterreichische Volksbanken, according to information provided by the Romanian subsidiary.
The Romanian bank saw a fast rise during the boom period of lending solely based on mortgage loan sales, but its loan portfolio fell similarly fast during the crisis.
(English version by Daniela Stoican)