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Oesterreichische Volksbanken AG (VBPS), the lender bailed out by Austria three times since 2008, may need additional writedowns on its commercial real estate mortgages if prices continue to fall in eastern Europe.
Volksbanken, which has to get rid of about 4 billion euros ($5.2 billion) of commercial real estate loans under a deal with the European Union, has been suffering in the last two years from sliding property prices in Romania, Hungary and Bulgaria, board member Michael Mendel told journalists in Vienna yesterday. It may have to set aside more reserves for potential losses on those loans if prices fall further, he said.
“If there’s a floor for the prices at the current level, we’ve made sufficient provisions for those portfolios,” said Mendel, responsible for winding down about 12.6 billion euros of assets. “If there are further erosions in those portfolios, we’ll have to look at it again every year.”
Volksbanken’s decade-long, fivefold balance sheet expansion has unraveled since 2008. The Vienna-based bank won EU approval for government support this week after agreeing to sell or wind down more than a third of its assets. It will focus on supporting the local cooperative banks that own most of it and get rid of large corporate and real estate financing and subsidiaries not focused on the support functions.
Chief Executive Officer Stephan Koren, who took office this month, told journalists at the same briefing that the EU- approved restructuring plan is the basis for his work in the next five years. Part of that plan is to free up enough capital to pay back the government by the end of 2017, Koren said.
Austria has 300 million euros of non-voting capital left in the bank, as well as a 43 percent equity stake bought for 250 million euros. The country has spent about 12 billion euros to bail out or support its banks since 2008 and has been told by ratings companies Standard & Poor’s and Moody’s Investors Service that lenders are the biggest risk to its sovereign creditworthiness. The Alpine nation may miss its 2012 budget target because of additional capital required by nationalized banks this year.
Volksbanken has consumed the biggest chunk of taxpayer aid. Its Kommunalkredit unit, then co-owned by Franco-Belgian Dexia SA (DEXB), was nationalized in 2008 and has since needed 2.2 billion euros of capital and guarantees. Volksbanken received 1.25 billion euros of government capital injections in 2009 and 2012 and an asset guarantee of 100 million euros.
Volksbanken has carved out a segment called “non-core business” that had 12.6 billion euros of assets at the end of June, 41 percent of its total assets, according to its quarterly report. It has already sold most of its eastern European banks, its property subsidiary, retail lenders it owned directly and a container-leasing unit.
The lender’s Romanian business, which was not part of a eastern European unit sale to OAO Sberbank this year, must be sold by the end of 2015, while the international leasing unit has to be divested by the end of 2014, Mendel said. Those two units, and the real estate and corporate loan books are the biggest assets to be wound down.
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