Bloomberg News

Kommunalkredit Profit Soars as Revenue Up, Charges Down

August 03, 2012

Kommunalkredit Austria AG, a bailed- out municipality lender seeking private sector buyers, returned to profit in the first half of the year as writedowns on Greek holdings didn’t recur and revenues rose.

Net income in the six months to June 30 was 12.25 million euros ($15 million), compared with 866,600 euros a year earlier when Greek writedowns weighed on profits, the Vienna-based bank said in a statement. Kommunalkredit, which had a loss of 148.8 million euros in 2011 because of Greece’s debt swap, expects to remain profitable in the second half as it revamps its business to grow in more lucrative segments.

“The new positioning of our business strategy shows success in the operating result of Kommunalkredit,” the lender said in the statement. “This is expected to continue in the second half of the year.”

Kommunalkredit, nationalized in 2008 when it was near collapse after the Lehman Brothers Holdings Inc. bankruptcy, must be returned to private ownership by June 2013. Austria hired Morgan Stanley to find buyers and invited bids last month. A sale would leave Austria with Kommunalkredit’s “bad bank” KA Finanz AG, which is winding down securities, loans and swaps that aren’t part of Kommunalkredit’s main business.

Net interest income rose 15 percent to 27.2 million euros in the period, driven by new business that has higher margins than Kommunalkredit’s legacy loan book, Chief Executive Officer Alois Steinbichler told reporters in Vienna. Fee and commission income, which is also a focus of the bank’s new strategy, expanded 10 percent to 7.5 million euros.

Bad Assets

KA Finanz, also led by Steinbichler, reduced its risk by about 1.5 billion euros to 16.2 billion euros in the three months to June 30 taking the total reduction this year to 3.1 billion euros, and to 13.3 billion euros since the nationalization in 2008. KA Finanz’s exposure consists of loans, bonds, and guarantees such as credit default swaps.

It took a loss of about 1 billion euros when Greece swapped its debt this fall which included charges because of CDSs it had written on Greek government bonds. Remaining risks in countries that are part of the euro area’s periphery stood at 2.7 billion euros, KA Finanz said.

Steinbichler said the risk reduction probably wouldn’t continue at the same pace in the second half of the year because the losses the bank is taking in active asset sales can’t be covered without more state aid. KA Finanz isn’t seeking more capital from the government now, Steinbichler said.

To contact the reporter on this story: Boris Groendahl in Vienna at

To contact the editor responsible for this story: Frank Connelly at

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