Austria: First To Go- Again?

First Blood In Austrian Banking Apocalypse: Raiffeisen Withdraws "Capital Note" Offer
Or, Austria Once Again To Introduce The Great Depression!?!

By The Prudent Investor | 30 June 2009

[I have] had very serious thoughts about the gargantuan problems of tiny Austria's banking sector stemming from [its financial community's] overly euphoric attempts to 'recolonize' Austria's long gone empire [during the recently ended go-go-go years]. Since the end of 2007 bits and pieces of information began to confirm this blogger's suspicions that Austria will be really, really hard hit.

I am [now able to] provide specifics thanks to Zero Hedge's blogs providing references to [published] documents issued by Raiffeisen Zentralbank group. Here we go with a story that could not only happen in Austria but in every country with a small banking industry where everyone knows everybody else and compliance regulations are only valid during sparse official business hours from 8 AM to 3 PM. [[e.g., Iceland? See Frozen Assets: Those Poor Vikings!?!: normxxx]]

Zerohedge, a shooting star in the global blogosphere with millions of hits, first raised my attention last week when it published the prospectus for an exchange offer where RZB group offered to exchange its "€500 million non-cumulative subordinated perpetual callable step-up fixed to floating rate capital notes"— in short— 'unsecured crap'— against some other unsecured crap called "non-cumulative subordinated perpetual callable fixed to floating rate capital notes" at 55 cents on the Euro. This 45% haircut was sexed up with a 15% coupon (coupon of old notes was 5.69%), but when one reads the fine print it sounded more like a pretty weak promise, as the fine print says RZB group has to pay that high coupon only if "it has enough resources to do so".

OMG, why don't we just go to the horse races straight away? The new notes were to be issued by RZB Finance (Jersey) IV limited, which is a 100% indirectly owned subsidiary of Raiffeisen Zentralbank AG (RZB) via Raiffeisen Malta Bank— also not exactly a plush bank— with €2,000 paid-up capital. A 'perpetual' note is an investment vehicle that never has to be redeemed by the issuer and therefore can only be resold in secondary markets— if bids exist for it.

RZB Jersey IV Ltd. has a paid up share capital of €2,000 and is 100% owned by Raiffeisen Malta bank, which also negatively stars with a paid-up share capital of €2,000. RZB Jersey's sole business is to raise hybrid capital for its parent RZB. Read all the details in the prospectus over at Zerohedge. Both companies losses in a total default of the new issue "worth" €275 million would be limited to that total €4,000 as much as I understand the complex web of finances.

So much about the recent past of this issue which had been made public on June 18. (Find all the details of the proposed exchange offer over at Tyler Durden's Zerohedge blog.) From here the story gets really hairy.

RZB issued a release on Monday, June 29, saying that it withdrew the offer for the exchange of the old into new "capital" (haha) notes. Having stored this release on my computer I first want to offer Zerohedge's suspicions why the issue was withdrawn.

• Complete lack of investor interest


• Concerns about what would happen once this lack of interest becomes public


• Trouble with accountants


• Rating agency getting back to the bank that this would be treated as a distressed exchange (as Zero Hedge speculated), putting the company into an 'Event of Default'.

But Tyler would not be Tyler if he did not also have some other possibilities for the withdrawal on his mind:

"Then again, the real reason is probably much more innocuous, and has to do with the bank discovering a buried gold treasure in its back yard which will be used to satisfy the several hundred billion in toxic assets as a result of chicken coups built in Transylvania at a 180% LTV (in probably a JV with GE Capital)"

There is nothing to add. Austria's [[entire?: normxxx]] banking sector is up to its ears in you know what, despite officials (worried about their pensions) saying otherwise.

For more about Austria's big role in the demise of Central Eastern Europe, financed with the money of depositors at those Austrian banks click on "Austria" e.g., to find more information and background about the possibility that Austria, not long ago considered the 6th richest country in the world, is in a good position to be the first Eurozone member that has to default. For more background— why every Austrian from baby to octogenarian— may be liable for up to €19,600 per capita thanks to bankers who saw only bonuses and nothing else— like, maybe, responsibility— read this post.

[ Normxxx Here:  Sounds like piffle compared with what our U.S. 'big' banks have committed us to! Good thing that all we have to do is print more dollars!  ]

Find all the details of the proposed exchange offer over at Tyler Durden's Zerohedge blog.

See also crisis