Only days after Austria’s Erste Group Bank AG became the first Austrian bank to take advantage of the government’s bailout funds, Kommunalkredit Austria AG announced on Monday that the Republic of Austria would acquire a 99.78% ownership interest in the bank. The bank’s previous owners, Dexia SA and Österreichische Volksbanken AG, will each transfer their respective 49% and 50.8% ownership interests in the bank to the Austrian government for €1. In addition, the bank will divest its 49% interest in Dexia Kommunalkredit Bank, transferring its shares to Dexia also for only €1. Dexia, which recently sought aid from the Belgian government, and its counterpart Österreichische Volksbanken have also agreed to convert a portion of their respective non-collateralized exposure to participation capital.

Kommunalkredit, founded 50 years ago to provide low-cost financing to local municipalities, stated that the ownership transfer will help the bank “weather prolonged negative economic conditions.” Due to the recent economic downturn, the bank has acknowledged that it suffers from a liquidity shortfall and will see depressed results for the current fiscal year. The transfer, together with additional capital infusion from the government, is expected to raise the bank’s Tier-1 capital ratio to between 8% and 9%.