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24 SPECIAL REPORT
CENTRAL & EASTERN EUROPE
Mountain rescue
Austria’s government is
now spending €100bn
on saving the country’s
failing banks. Tom
Phillips investigates
#AUSTRIA’S ACTION PLAN
To deal with the financial crisis
and restore investor confidence,
Austria implemented
measures that were received
with interest by governments
and interested parties beyond
its own borders.
The changes, made under
the 2008 Inter-Bank Market
Enhancement Act, the 2008
Financial Market Stabilisation
Act and amendments to the
Banking and Stock Exchange
Acts, came into force in October
2008 and centred on a €100bn
(£92.12bn) kitty for the Austrian
finance minister to administer
like a fiscal Band Aid.
For the banks, the plan
included up to €15bn
(£13.82bn) earmarked for
their recapitalisation or
expropriation (as with
Kommunalkredit).
Other new legislation
includes an amendment
tightening the rules on short
selling. Austria’s financial
regulator, the Financial Market
Authority, can now prohibit
short selling of any security or
may impose restrictions with
regard to short selling for a
period of up to three or even
six months. Short selling rules
have also been changed for
traders on the Vienna Stock
Exchange.
The majority of the rescue
package, up to €75bn
After rebuilding eight former
Communist nations that
joined the EU in 2004, the
banks of Austria are now
fighting to stay afloat.
How one of the world’s most secure banking
communities found itself with loans of
around €201bn (£185.87bn) – equal to
around 71 per cent of the nation’s GDP – is
a question for the historians. But with
investors ranking Austria’s bonds as less
safe than those of Italy, Spain or even Slovakia,
the country’s lawyers are frantically
working on recapitalisations brought about
by a major €100bn (£92.12bn) rescue
package from the Republic of Austria.
One week after the rescue legislation was
passed, the government undertook the first
bank nationalisation when it agreed to buy
Kommunalkredit Austria on 27 October
(£70.23bn), was set aside for
state guarantees, sureties and
assumptions of liability. Up to
€10bn (£9.37bn) has been
allocated for a backup and
enhancement of deposit
guarantees. Under the new
scheme, the protection amount
has been increased to 100 per
cent of the bank deposits of
‘natural persons’, while the
protection for mid-size
businesses has increased from
€20,000 (£18,733) to €50,000
(£46,823) (expiring on 31
December 2009).
As of 1 January 2010,
deposits of individual persons
will be guaranteed up to
€100,000 (£93,646).
2008. Since then Austrian law firms have
been working overtime on an array of firsts
for the legal market that put them at the
heart of the national economy’s recovery.
“This is an unusual and interesting time.
A year ago we couldn’t have imagined anything
like this,” says Wolf Theiss banking
partner Markus Heidinger.
Wolf Theiss and its 35-strong banking
practice is heavily involved in many of the
issues affecting the banks, including advising
Hypo Group Alpe Adria, Erste Bank
and Volksbanken on either strengthening
the banks’ equity basis or guaranteeing their
debt issues.
Heidinger says Austrian banks may
become targets for international players in
the future, meaning more traditional lawyering.
But right now this is unprecedented
legal work.
“We’re answering questions no one has
asked before,” he explains. “The work is
sophisticated, time-critical and requires
greater partner input.”
Fellner Wratzfeld & Partners is representing
a group of Austrian banks (Bank
Austria, Erste Group, Raiffeisen Zentralbank
Oesterreich (RZB), Bawag PSK and
Oesterreichische Volksbanken) in saving
one of the largest private banks in Austria,
Constantia Privatbank. As part of the
package, the five largest Austrian banks
bought all the shares in Constantia together.
Extensive legal and business due
diligence is still being undertaken to
determine the future strategic direction of
the troubled bank.
“We worked on a previous well- publicised
bank restructure in 2005 with Bawag PSK,
involving the Austrian government and the
European Commission, and this is very
similar,” says Markus Fellner, partner at and
head of Fellner Wratzfeld’s 10-strong banking
and finance practice. “If we hadn’t solved
that problem in two nights there would’ve
ISTOCK
THE LAWYER
23 MARCH 2009
been supervision by the banking authority
and the bank would be made insolvent. We
learnt a lot then and we’re working with the
same people now.”
Christian Herbst, a banking partner at
Schönherr, is advising Oesterreichische
Volksbanken as the majority shareholder
in the sale of Kommunalkredit, and RZB on
the first-ever asset-backed securities
transactions of an Austrian originator.
The firm is also advising Immofinanz on
its reorganisation and restructuring of real
estate groups throughout Central and
Eastern Europe worth €15bn (£13.82bn).
Much of it is unique work, and that which is
normal is being performed in a unique
environment.
“The structure of the Kommunalkredit
nationalisation was groundbreaking,” says
Herbst. “Our advice to clients is new and
evolving constantly. We’re using financial
instruments to tap government funds and
case law is being tested for the first time.”
Although they now appear to have the
greatest credit exposure in the region, Austrian
banks were in fact helped by their
investment into Eastern Europe, missing out
on the majority of bad debt that has brought
down financial institutions across the world.
“Austria missed out on the first wave of the
recession,” says Tibor Varga, a banking and
finance partner at Dorda Brugger Jordis.
“So far there’s only been one bank nationalisation,
but others are in discussions as a
precautionary measure. People outside
Austria are taking an interest in what
happens here.”
Varga believes that the impact of the
Austrian bank restructuring will impact on
Eastern European economies, but what
form that will take is uncertain.
We’re answering questions
no one has asked before.
The work is sophisticated,
time-critical and requires
greater partner input
Markus Heidinger, Wolf Theiss
Cries of an Austrian banking crisis from
external analysts are threatening to drag
the country’s hitherto unblemished banking
reputation down with Italy and Spain,
sparking a ferocious defence from Austria’s
banking community.
Herbst adds: “It’s a debate that the Austrian
banks reject. It’s much too early to tell
how the Austrian economy will perform.”
Fellner Wratzfeld’s Fellner says the
economic crisis will make a famously
conservative banking system even more
careful. “The banks have to concentrate
more on their core business and leave
synthetic financial processes aside. This will,
of course, mean less profits,” he says. ■
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