Corrispondenza con l'IR Oevag
Dear ...
we regret that we had to inform our investors about the expected loss. At the beginning of the year, the economic environment was promising and we were optimistic regarding the implementation of our goals (sale of participations, de-merger to Investkredit, redemption of part of the State participation capital and resumption of coupon payments in 2012). Market conditions now are much more difficult for banks (sovereign crisis, decline of value of financial assets, volatile markets, danger of recession in Europe, etc.), unfortunately, this affected VBAG significantly and we had to issue last week´s profit warning. Please find the answers to your questions below:
1. I read that: "Currently the board of directors and the core shareholders of VBAG are discussing measures to strengthen VBAG’s capitalization. Part of these discussions is the modification of the Schultze-Delitzsch Genossenschaftsverbund in the form of a cooperation under Article 3 of the directive 2006/48/EC (part of the European application of Basel II) or the Article 9 of the CCR I draft (Capital Requirements Regulation I, which is the directly applicable regulatory part of the Basel III execution on the European level)".
Can you please provide more details about expectable measures to strengthen Tier-1 capital? Do they involve injection of more public capital or sale of any asset? Is this going to affect capital certificates anyhow?
The modification of the Genossenschaftsverbund (mutual support scheme of the Volksbank sector) is currently being discussed - it is planned that VBAG and the primary banks will move closer together legally, via a system of cross-guarantees. Details are not available yet, we will keep our investors informed. Apart from this structural reform of the Genossenschaftsverbund, VBAG still intends to sell its stake in RZB and Volksbank Leasing International - subject on improving market conditions. We can not yet comment on the potential injection of more public capital since we do not know what EU or Austrian authorities plan for the future. The sale of VBI has significant positive effect on capital ratios. Factoring in the anticipated losses for 2011 we expect higher captial ratios at year end 2011 than we had at year end 2010. Furthermore, VBAG intends to reduce its risk weighted assets over the coming years and will exit several business fields. This, over time will have a further captial strengthening effect. Effects on participation capital certificates from the modification of the Genossenschaftsverbund or any capital strengthening measures are not expected.
2. Can you please specify how XS0359924643 capital certificates rank versus Rep. of Austria existing participation capital? What yearly interest is nominally due on R.of Austria part. capital?
XS0359924643 participation capital certificates rank pari passu with the participation capital held by the Republic of Austria which has a coupon of 9.3%.
3. According to your current knowledge and given the loss as reported in the press release, what amount/levels of capital reserves have to be affected before any XS0359924643 capital certificates may have their nominal value affected/reduced?
The expected loss exceeds available reserves (EUR 162 million, see Individual financial statements, page 215), there will be a balance sheet loss which will be carried forward. A reduction of the nominal value of the participation capital certificates is possible according to the terms and conditions. It would also affect share capital and would have to be resolved by the general assembly.
4. Would you please specify current exposure to sovereign debt of Greece? And then of Ireland, Spain and Italy? What logic of devaluation (ie. -21% NPV of IMF restructuring plan of Greek debt) has been applied to such sovereign exposure so far? Should we expect any further adjustment to current market values?
As of 30 June 2011, the exposure to government debt is as follows: Greece EUR 162 million, Ireland EUR 118 million, Spain EUR 227 million and Italy EUR 234 million. For further details, please see page 26 of the VBAG presentation which is attached. Please note that the exposure to peripheral countries is presented on a nominal basis (no market value changes, write-downs are reflected).
In the first half year, VBAG wrote down Greek government bonds by an amount of EUR 24 million which was shown in the income from financial investments position. On page 6 of the half-year financial report which is also attached, this is explained: "As a result of the bailout of Greece by the EU in July, in which the private sector is to participate, Greek bonds had to be impaired. As a result of this, the available for sale reserve was reclassified to profit or loss with an amount of EUR -17 million. Securities in the held to maturity category were measure at a present value of 79%, corresponding to an impairment of euro 7 million .... VBAG Group thus fully followed the recommendations of the German and Austrian auditors with regard to the valuation of Greek securities."
Further write-downs for Greek government bonds or other sovereign exposure might become necessary in the next months - this is one of the reasons why we gave a range of EUR -750 million to EUR -1,050 million at the single entity level. The anticipated loss of EUR 900 million includes already a potential haircut of 60% on our Greek government bond holdings.
Do not hesitate to contact us if you require any further information,
best regards,
...
