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January 1996

Austria: Creditanstalt - haggling over the bride-price


The scrap over Creditanstalt defies description. The government wants to maximize sale proceeds but management thinks the bank is overpriced. Foreign bidders were invited although the government favours Austrian ownership. And an Austrian-led consortium favoured by the bank's management was rejected by the finance minister. Ronan Lyons looks at the confused attempts to sell Austria's second-largest bank.




The collapse of Austria's coalition government has scuppered the latest attempt by the state to offload its controlling interest in Creditanstalt. The new government will face the same problems in maximizing the sale value of a bank trapped in a quagmire of jingoism and vested political interests.

How long does it take to privatize a bank? This may seem like a rather facile question to most of us, but not to the Austrians. In April 1991, the Austrian parliament passed a law permitting the privatization of Creditanstalt-Bankverein. The manner of the sale was not to be fixed by parliament but was to be left to the discretion of the government. But after almost five years of quibbling over the minutiae of enabling legislation and the merits of a flotation or a tender sale, people began to wonder if the government really wanted to privatize the bank at all.

In September 1995, however, the government took the plunge and opted for a competitive tender. The state owns 68% of voting shares and 48% of total shares in the bank, and these were both put up for sale to the highest bidder. If maximizing the sale proceeds is the primary goal then a trade sale rather than a flotation is the obvious choice. "The bottom line is that whoever pays the most will win control of the bank," says the socialist minister of finance, Andreas Staribacher. The tender documents - drafted by JP Morgan, the government's adviser on the sale - clearly stated the intention of the government "to maximize the price of the Creditanstalt stock and to sell it against cash".

But selling Creditanstalt was never going to be so simple. Within a week of the October 9 deadline for bid submissions, the government collapsed. The year-old coalition of the Social Democratic Party (SPÖ) and conservative People's Party (ÖVP) fell apart over measures to cut the government deficit in the 1996 budget. The inevitable postponement of the sale means that the government must forgo Sch18 billion ($1.8 billion) of badly needed revenue. If Austria is to meet the 1997 deadline set by the EU for prospective member countries of the monetary union to have a budget deficit of no more than 3% of GDP, the only alternative to a large-scale privatization is draconian cuts in public expenditure.

Before its abandonment, the tender process put a magnifying glass to the jingoism and protectionism blighting Austria's banking sector. The ground-breaking purchase of Austrian savings bank Bank für Arbeit und Wirtschaft by Germany's Bayerische Landesbank in May 1995 provoked little opposition. But Creditanstalt is different. Apart from being the country's second-biggest bank, it also has close links with the conservative ÖVP (known as "the blacks") and acts as a funnel for political patronage and nepotism. The socialist "red" camp maintains its interest in the banking sector through the country's largest bank, Bank Austria. The red and black camps will cling desperately to their banking interests until banks divest themselves of their massive industrial holdings.

The tender documents make no explicit reference to the preservation of Austrian interests, despite the clamour from the ÖVP for a clause to be inserted favouring an Austrian solution. But allowing Creditanstalt to fall into the hands of foreigners is still anathema to most Austrians. Even the federal chancellor, Franz Vranitzky of the SPÖ, is on record as saying that he favours Austrian core-ownership for Creditanstalt. The deputy chancellor and leader of the ÖVP, Wolfgang Schüssel, favours a similar solution.

Should foreigners be feared?

The fear is that, with a foreign takeover, the important strategic decisions of the bank might be subjugated to the policy of the multinational buyer. But those whose judgement is less clouded by political considerations state a clear preference for a foreign takeover, and with it an injection of new funds into the banking sector. Once a local buyer had consolidated its balance sheet, there would be no net increase in funds in the sector. In addition, a foreign buyer would be a strong force for rationalization in a sector already overbanked, overbranched and overstaffed.

But the omens for a clean transfer to a new owner, whether foreign or domestic, are not good. Creditanstalt leaves behind it a string of spurned suitors. In May 1993, a hostile bid from Raiffeisen Zentralbank (RZB), the traditionally conservative umbrella group of Austria's rural banks, was rejected by the government on the grounds that it was not backed by a credible financing package. RZB offered to buy a controlling stake in Creditanstalt and then to merge both institutions, amounting in practice to a reverse takeover. From then on, the management and the ownership were to go their different ways.

A subsequent bid from CS Holding was shot down with a nationalistic fervour that alarmed many. CS wanted to buy the bank outright but the conservatives scuttled the bid with barely disguised xenophobia. "The CS bid was different," says one source at Creditanstalt. "They made it clear that Creditanstalt would have been integrated with its new owner. As a result, important strategic decisions would have been made in Zürich." CS is unlikely to be lured back into the fray. "The file on Creditanstalt remains closed," says Gerhardt Beindorff, director of public relations at CS Holding. Insult was added to injury when the then head of the ÖNB (the central bank), Maria Schaumayer, proclaimed that the Swiss flag would never fly from Creditanstalt.

The ÖNB later disowned the comments. "We take no formal position on the matter of the sale of Creditanstalt," says Dietmar Spranz, a member of the bank's executive board. "The task of regulating the banking sector lies with the ministry of finance and it is not obliged to ask the opinion of the ÖNB. Our only desire is to see negotiations completed as soon as possible." But Schaumayer's outburst met with a warm reception from the management of Creditanstalt. A subsequent approach in February 1995 by German insurer Allianz was similarly given short shrift by Creditanstalt when information was requested from the bank. Allianz promptly withdrew its offer.
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