Bloomberg News

Austria Decides to Sell Nationalized Lender Kommunalkredit

November 29, 2011

(Adds sale to be completed 2013 in fourth paragraph.)

Nov. 29 (Bloomberg) -- Austria has decided to sell Kommunalkredit Austria AG, the lender nationalized shortly after the collapse of Lehman Brothers Holdings Inc., in the country’s first privatization since 2008.

Chancellor Werner Faymann and Finance Minister Maria Fekter agreed to sell the bank, which mainly lends to municipalities, by June 2013, according to a document due to be approved at the government meeting in Vienna today. The document, drafted by the finance ministry, was obtained by Bloomberg News.

Kommunalkredit, then owned by Oesterreichische Volksbanken AG and Dexia SA, was nationalized in October 2008 to avoid a collapse when liquidity dried up. It was split into the municipal lending unit that now will be put up for sale, and KA Finanz AG, a “bad bank” that took on securities, loans and credit default swaps that are not part of that main business business and is winding down those assets.

The European Union required Austria to sell Kommunalkredit by June 30, 2013, when it approved the state aid for the lender and its restructuring plan in March, according to the ministry document.

Kommunalkredit’s net income halved in the six months ended June to 866,600 euros ($1.2 million) because of writedowns on Greek government bonds. It had 16.5 billion euros of assets. KA Finanz, which is not being sold, had a loss of 71.3 million euros in the six months ended June, according to Austrian accounting rules. It has 13.8 billion euros in assets as well as 10 billion euros in contingent liabilities, mainly due to its CDS portfolio, according to KA Finanz’s half-year report.

--Editors: Zoe Schneeweiss, James Kraus

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net


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