Austrians Cut -g-
Wednesday November 18, 10:23 am Eastern Time
S&P cuts Bank Austria AG snr unsec debt
(Press release provided by Standard & Poor's)
NEW YORK, Nov 18 - Standard & Poor's today lowered its long term counterparty credit, senior unsecured, and subordinated debt ratings on Bank Austria AG to double-'A'-plus from triple-'A'.
At the same time, Standard & Poor's affirmed its 'A-1'-plus short term counterparty credit and certificate of deposit ratings on Bank Austria AG and its 'A-1'-plus short term commercial paper rating on Bank Austria Commercial Paper Inc. (guaranteed by Bank Austria AG).
The outlook is negative.
In a related action, Standard & Poor's also affirmed its 'A-1' short term counterparty credit, certificate of deposit, and commercial paper ratings on Creditanstalt AG, Bank Austria's wholly owned subsidiary.
The rating action on Bank Austria reflects the increased possibility that the City of Vienna's deficiency guarantee (through Bank Austria's holding company, Anteilsverwaltung Zentralsparkasse (AV-Z)) for new debt could be withdrawn in the medium term.
It also reflects Bank Austria's significantly weakened financial profile as a result of its large emerging market exposures, in particular to Russia.
On Nov. 5, 1998 an amendment to the Austrian Savings Bank Act was passed by parliament, and will be effective from Jan. 1, 1999.
This amendment introduces the option to change the legal existence of AV-Z into a foundation.
The possibility of transforming legally into a foundation currently does not exist. Enacted as a law, this amendment will allow the transformation of a savings bank into a private foundation at the exclusive discretion of the managing board of the savings bank (in Bank Austria's case AV-Z).
If the managing board of AV-Z adopted such a resolution, it would have to be presented to the supervisory board of AV-Z for approval.
Approval by the supervisory board requires a quorum of at least two-thirds of its members and the consent of two-thirds of the votes cast.
Standard & Poor's understands that the current managing board of AV-Z will not support such a resolution. Nevertheless, it cannot be ruled out that at some point in the future such a resolution could be passed and the deficiency guarantee be no longer available to support Bank Austria's future liabilities.
The City of Vienna's financial position remains strong and its legal commitment regarding its responsibilities outlined in the Savings Bank Act, that is, its status as deficiency guarantor for Bank Austria, remains unchanged at this point.
The amendment of the Austrian Savings Bank Act stipulates that in the case of a transformation of AV-Z into a foundation, the responsibility of the City of Vienna (through its deficiency guarantee) would remain unchanged for those liabilities already in existence on the balance sheet date following the registration of the transformation into a foundation in the firm registry, that is, existing liabilities would be grandfathered.
This has been confirmed in writing to Standard & Poor's by the City of Vienna.
Standard & Poor's believes that the incentive for the City of Vienna to honor its deficiency guarantee in a timely fashion may be lower, however, once it no longer covers all of the bank's liabilities.
Bank Austria is the largest banking group in Austria, with total consolidated assets of Austrian schilling (ASch) 1.7 trillion (US$142.9 billion at ASch11.9 to US$1) at June 30, 1998.
As a result of massive group restructuring following the acquisition of Creditanstalt by Bank Austria in 1997, the group is now organized into three operating entities, Bank Austria AG, the parent bank and home of global treasury and other group functions, Creditanstalt, which operates in the domestic retail and commercial markets, and BA CA International, a holding company operating the group's international activities and branches, including Creditanstalt Investmentbank. At Jan. 1, 1998, proforma assets of Bank Austria were ASch1.2 trillion, of Creditanstalt AG, ASch336 billion, and of BA CA International AG, ASch139 billion.
OUTLOOK: NEGATIVE
The negative outlook reflects the potential changing status of the Bank Austria group toward privatization under the procedures stated in the 'Coalition Agreement' of Jan. 12, 1997.
It also reflects the weakened financial fundamentals of Bank Austria and the potential further negative impact on earnings, capital ratios, and asset quality of turmoil in its core international markets, Standard & Poor's said. |
