Bank Austria AG
Bank Austria AG
Total Assets: AS 1.4 trillion (US$109 billion) (1997)
Stock Exchanges: Brussels Paris Vienna
SICs: 6021 National Commercial Banks; 6035 Federal Savings Institutions; 6099 Functions Related to Deposit Banking; 6211 Security Brokers and Dealers; 6282 Investment Advice
With over one-fifth of the nation’s banking business, Bank Austria AG is Austria’s largest and most profitable banking group. Formed through the October 1991 union of Zentralsparkasse und Kommerzialbank Wien (Z-Bank) and Österreichische Länderbank (ÖLB or Länderbank), the financial institution boasts nearly 300 offices nationwide and an additional 40 outlets around the world. Bank Austria leads all the nation’s financial segments, including retail, commercial, private, asset management, investment banking, trade finance, and insurance. In late 1997 its assets totaled AS 1.4 trillion (US$109 billion). Due to its substantial investments over the decades, it also ranked as Austria’s largest private holding company, but was divesting non-bank interests in the mid- to late 1990s.
The institution has more than just size in its favor; due in part to a deposit guarantee by the City of Vienna, it enjoys a stellar credit rating. Moody’s Global Finance placed it among the world’s twenty safest banks, and it earned the titles of “Best Bank in Austria” and “Best Security Firm in Austria” from trade magazine Euromoney every year from 1993 through 1996. While it has operations throughout the world, Austria remains its key market.
Bank Austria’s equity is controlled by a group of governmental and institutional investors including the Anteilsverwaltung Zentralsparkasse (AV-Z), a foundation owned by the City of Vienna, with a 45 percent share; the federal government of Austria, which holds a 19 percent stake; Germany’s Westdeutsche Landesbank Girozentrale (WestLB), with ten percent; Italy’s Cariplo (the world’s largest savings bank), with 5.6 percent; and the Wiener Städtische Austrian insurance group, with about ten percent.
Foundations and Development
Bank Austria was created in 1991, when Zentralsparkasse und Kommerzialbank Wien (Z-Bank) absorbed Österreichische Länderbank (ÖLB or Länderbank). ÖLB was the older of the two banking groups. It was founded in November 1880 as k.k. privilegierte Österreichische Länderbank, a subsidiary of France’s Société de L’Union Genérale. Länderbank was spun off from the parent company in 1882, and opened its first branch bank in Paris in 1882. The Austrian bank later established branch locations in Prague, London, Bolzano, and Pilsen.
Over the course of its development, Länderbank carne to emphasize commercial and retail banking as well as securities trading. The establishment came under state control in 1946, and although privatization began in 1956, the federal government still owned a controlling stake in Landerbank through 1990. By that time, ÖLB was the nation’s fourth-largest financial institution, with 4,200 employees, 1.1 million accounts, 140 domestic offices, and 24 foreign offices.
Though younger, Z-Bank had grown to become the larger of the two merged banks. It had been founded in 1905 by a resolution of the Vienna City Council and opened its headquarters branch there in 1907. Over the course of its first quarter-century in business, the institution built 23 offices throughout Vienna and captured one-fifth of the capital city’s savings accounts. Z-Bank was transformed into a joint stock company in 1990, with 90 percent of its shares held by the City of Vienna’s AV-Z trust and the remaining ten percent in the hands of institutional investors. Its liabilities continued to be guaranteed by the City of Vienna even after the merger with Länderbank.
By the time of the merger, Z-Bank was Austria’s largest savings bank, and Europe’s seventh-largest financial institution overall. In addition to its nearly 1,300 offices in Austria, the bank had branches in Milan, London, Tokyo, Frankfurt, Moscow, Paris, and Prague.
1991 Banking Consolidation in Austria
The 1991 union of these two massive banks was perceived as a first step to relieving what Euromoney called an “over-banked, over-branched, and over-staffed” Austrian banking industry. Under the chairmanship of Rene Alfons Haiden, it took five difficult years to consolidate and rationalize the two banks’ operations. Dozens of branches were shuttered, and group employment was reduced by nearly 11 percent, from 9,929 in 1991 to 8,867 by the end of 1996. Productivity (in terms of pre-tax net per employee) doubled during the period, from AS 292,000 to AS 586,000. Assets increased 44 percent to AS 742 billion, and operating profit jumped 80 percent to AS 5.2 billion. During that time, however, Bank Austria’s return on equity fluctuated between four percent and seven percent, and its share price reflected that vacillation. Nevertheless, the merger was, according to the Economist, “widely seen as a success.”
Having advanced through Zentralsparkasse and served as deputy chairman of Bank Austria from 1991, Gerhard Randa became chairman of the group in 1995. Nicknamed “Rambo” by his colleagues in the Viennese banking community, the Harley-Davidson aficionado was known as an “aggressive deal maker” whose zeal sometimes got him in trouble. Such was the case with Bank Austria’s 1994 acquisition of third-ranking GiroCredit Bank Aktiengesellschaft der Sparkassen. Although the two institutions were considered a logical fit, Bank Austria divested its holdings in GiroCredit in 1997. Though acquisitions took center stage during Randa’s tenure, he continued to emphasize efficiency, telling Euromoney that “The key element to our strategy is productivity,” in a June 1996 interview.
1997 Union with Creditanstalt
The ongoing restructuring of Austria’s banking industry also entailed privatization of long-held government positions in key banks. In 1997 Bank Austria beat Italian, German, American, and domestic rivals with an AS 17.2 billion (US$1.5 billion) bid to acquire the federal government’s 70 percent stake in the Creditanstalt-Bankverein. Known as Austria’s most worldly bank, Creditanstalt was founded by the wealthy Rothschild family and later ranked among Europe’s largest banks. It was at one time so influential that some historians assert that its 1931 crash triggered the Great Depression.
The merger agreement kept the venerable bank in Austrian hands, but came with some strings attached. For example, the government-brokered deal required that Creditanstalt “remain a separate legal operating entity for five years and that no targeted staff reductions may be undertaken by Bank Austria.” This factor seemed to preclude many potential cost savings and economies. As the Economist pointed out in May 1997, “Instead of weeding out wasteful duplication, the two banks will continue to compete, even where they have branches side by side.” Institutional Investor’s Giles Peel noted that the deal, which was supposed to have privatized Creditanstalt, “effectively postponed the long-awaited privatization” by merely transferring ownership of Austria’s best-known bank from the federal government to the municipal government of Vienna, which still indirectly owned 45 percent of Bank Austria. (In fact, the federal government continued to own 19 percent of Bank Austria through the end of 1997.)
Early in 1997, Austria’s coalition government outlined a privatization program through which the City of Vienna’s An-teilsverwaltung Zentralsparkasse (AV-Z) foundation would reduce its 45 percent stake in Bank Austria to less than 25 percent within five years. Progress toward that goal was hindered that June, when the bank revealed that minority stakeholder West-deutsche Landesbank Girozentrale (WestLB) of Germany, which already owned just over ten percent of Bank Austria, enjoyed right of first refusal over any shares divested by AV-Z before the end of 2001. Analysts observed that this factor would likely prevent AV-Z from selling any equity in order to preclude the German bank from becoming the majority owner of Austria’s flagship bank.
Randa also quickly sidestepped the government’s requirement that Creditanstalt remain independent by integrating international operations as well as the two institutions’ investment banking subsidiaries. He also expected to achieve some economies by unifying back office operations, a process that was forecast for completion by the end of 1999. Thus, while the Creditanstalt name and legal entity persisted, many operations were merged.
The Late 1990s and Beyond
Chairman Randa’s strategy for the future targeted expansion into eastern and central Europe and Asia. Hoping to apply Bank Austria’s extensive privatization and initial public offering experience (the institution had participated in the launches of British Petroleum, British Telecom, Wellcome, Adidas, and many Austrian firms) in former communist countries, Randa established operations in Slovenia, the Czech Republic, Hungary, Poland, Russia, and Croatia. By mid-1997, Bank Austria was the leading foreign bank throughout eastern and central Europe.
Bank: BA Treuhand AG f. Immob. & Bet. Fonds; VISA-Service Kreditkarten AG; BA-Handelsbank AG; BA Wohnbau-bank AG; Investmentbank Austria AG; EB und HYPO-Bank Bergenland AG; BANKINVEST Austria GmbH; ÖCI-GZB BeteiligungsgmbH; ÖKB-HoldinggmbH; Investkredit Holding GmbH; Europay Austria Zahlungsverkehrssysteme GmbH; BA Leasing GmbH; BA Leasing Holding 2 GmbH; BA Finanz-service GmbH; BA Teleservice GmbH; BA AG-Immobilien u. Mobilien-vermietungs OHG; DATASERVICE Invormatik GmbH; DATASERVICE Org. u. Datenverarb. GmbH; Garage AM Hof GmbH; GANYMED Immob. GmbH; HYPERION Immob. GmbH; Lassallestr. Bau-, Planungs-, Errichtungs-und VerwertungsgmbH; GELDSERVICE Logistik für Wertges-tionierung und Transport-koordination GmbH.; BA & GrECo Versicherungs-management GmbH; UNION Versicherungs-AG; Vereinigte Pensions-kasse AG Wiener Städtische Allge-meine Versicherung AG; BA (CR) a.s. (Czech Republic); BA (SR) a.s. (Slovakia); BA d.d. (Slovenia); EURÓPAI KERESKEDELMI BANK RT (Hungary); BA (Switzerland) Ltd.; BA Croatia d.d.; BA Cayman Islands Ltd.; LB Fonds BeratungsgmbH (United States); BA Property Investment Ltd. (United Kingdom). Non-Bank: BA Industrieholding GmbH; UNITECH AG; Wiener Betriebs- und Baugesmbh; Allgemeine Baugesellschaft-A. Porr AG; BA Handelsholding AG; USEA Umweltservice Austria GmbH; Colpack-Kolkoks-Wihoko Brennstoff-handel GmbH; Wiener Kuhlhaus Frigoscandia GmbH; Center Nachrichtentechnische Anlagen GmbH; TSG EDV Terminal Service GmbH; Gewista WerbegmbH; Wiener Hafen und Lager Ausbau- und Vermogensverwaltungs-gmbH (WHY); Wiener Messen und Congress GmbH; Hotel & Touristik Holding AG; Heilbad Sauerbrunn BetriebsgmbH & CoKG; Palais am Stadtpark Hotel Betriebs GmbH & CoKG; Immobilien Holding GmbH; Wohnbauerrichtungs-und Verwertungs AG; ARWAG Holding-AG; Erste Wiener Hotel AG; Wiener BautragergmbH; BA Wohnbau AG; Ekazent RealitätengmbH; Klea Terrain-und Bau-GmbH; Interring GmbH; IMMOTRUST Anlagen AG;
“A Long Way from America: Creditanstalt’s Flawed Renaissance,” Economist, May 17, 1997, pp. 84–85.
“Bank Austria,” Banker, May 1995, pp. 4–5.
“Bank Austria: A Bank for Europe,” Euromoney, July 1997, pp. 88–91.
“Bank Austria: A Wealth of Experience in Privatization,” Euromoney, June 1996, p. 27.
“Bank Austria: Number One in the Domestic Market,” Euromoney, June 1996, p. 24–25.
“Bank Austria Takes the Stage,” Banker, November 1991, pp. 8–9.
“Best Firm in Austria,” Euromoney, September 1994, pp. 46–47.
“Deals in the Balance,” Euromoney, September 1997, pp. 409–10.
Hall, William, “The Waltz Stops Here,” Banker, February 1997, pp. 37–39.
King, Paul, “Take Your Partners,” Euromoney, January 1992, pp. 29–33.
——, “Banking Tangles Begin to Unravel,” Euromoney, January 1993, pp. 56–58.
Peel, Giles, “Banking; Can Randa Make It Work?” Institutional Investor, September 1997, p. 29.
“A Powerhouse in Austria,” Euromoney, September 1994, pp. 44–45.
“Red Faces in Vienna,” Banker, June 1993, p. 4.
Shirreff, David and John McGrath, “Death of a Bank,” Euromoney, March 1997, pp. 44–50.
“Strategic Alliances: An Interview with Gerhard Randa, Chairman,” Euromoney, June 1996, pp. 25–26.
—April Dougal Gasbarre