First Blood Spills in Austrian Banking Meltdown

Having had very serious thoughts about the gargantuan problems of tiny Austria’s banking sector stemming from overly euphoric attempts to financially recolonize Austria’s long gone emporium since the end of 2007, bits and pieces of information begin to confirm this blogger’s suspicions that Austria will be really hard hit during this downturn.
Resisting attempts to blog more on the matter because of possible libel suits I now can come up with more details thanks to Zerohedge’s blogs, detailed publications of 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 everybody knows everybody and compliance regulations are only valid during sparse official business hours from 8 AM to 3 PM.
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 ” million noncumulative subordinated perpetual callable stepup fixed to floating rate capital notes” in short, unsecured crap against some other unsecured crap called “noncumulative 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 more sounded like a weak promise as the fine print says RZB group only has to pay that high coupon if it has enough resources to do so.
Oh my god, why don’t we go to the horse races right 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 via Raiffeisen Malta Bank, also not exactly a plush bank with paidup 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 there are bids for it.
RZB Jersey IV Ltd. has a paid up share capital of and is 100% owned by Raiffeisen Malta bank, which also negatively stars with a paidup share capital of 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” million would be limited to these as much as I understand the complex web of finances without money.
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 (pseudonym) Zerohedge blog.
From here the story gets really hairy. RZB issued a release on Monday 29, saying that it withdrew the offer for the exchange of the old into new “capital” (haha) notes. Austria’s banking sector is up to its ears in you know what, despite officials saying otherwise (they also begin to worry about their pensions).
For more background on why every Austrian from baby to octogenarian may be liable for up to per capita thanks to bankers who saw only bonuses and nothing else like maybe responsibility read this post.

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