Austria’s economy is among Europe’s most stable. Life as an Austrian banker is not quite the same. Austrian banks have ridden a rollercoaster in recent years — and the dramas are not over.
The years before the post-2007 economic crises saw strong expansion into neighbouring eastern European markets — followed by a later retreat. “We had seven boom years and then we had seven years to clear up,” says Andreas Treichl, chief executive of Erste Group, bank.
The challenges of running business networks extending across eastern Europe remain significant. Raiffeisen Bank International has had to weather the economic turmoil created by Russia’s stand-off with the west over Ukraine, and its restructuring plans have been delayed in Poland by complications created by its €3.2bn of local Swiss franc loans.
But much bigger waves have been created in Austrian finance this year by the former Hypo Alpe Adria, whose creditors the Austrian government is racing to strike a deal with before a moratorium on bond payments expires next May. Backed by the provincial government of Carinthia, Hypo was the victim of an over-ambitious international expansion. Its remaining assets were transferred into a “bad bank” named Heta. Guarantees provided by Carinthia, still potentially worth €11bn, could yet bankrupt the province.
The government plan is to create a special purpose vehicle, comprising proceeds from Heta and the province of Carinthia, that will be used to buy out bond holders, but the negotiations are likely to be fraught.
Hypo “epitomises the political influence that was exerted over Austrian banks in the past — and serves as a strong example of what not to do with a bank”, says Mr Treichl. “It has hurt Carinthia, it has hurt Austria and it has hurt the image of the country.”
In dealing with Hypo, Austria is pioneering new EU rules on who pays when banks fail. For other Austrian banks, one effect has been that they have faced greater scrutiny when raising funds in global financial markets. Austrian banks have also faced tougher conditions in their home market. The partial retreat from overseas markets has intensified competition for domestic business, as have the sluggishness of economic growth and a bank levy imposed by the government.
One top Austrian bank executive says: “Austria still suffers from too many banks, too many employees and too much employee security — but actually there are some good banks in Austria.”