The Austrian banking conglomerate Erste Group Bank AG announced today that it will receive approximately €2.7 billion from the approximately €100 billion capital and guaranty program established by the Austrian government last week. The bank, which already has relatively healthy capital ratios, cited “new capital adequacy standards imposed by international competition” as the primary reason for seeking the government’s investment. The bank stated that, together with the organic growth expected through year end, which will raise the bank’s Tier 1 capital ratio from 7% to 7.5%, the government's capital infusion will push the bank’s ratio to over 10%. Furthermore, the aid is expected to come in an attractive package – the shares issued to the government will be non-listed, non-voting and non-transferable (resulting in no dilution of existing shares), will carry a fixed 8% interest rate, and are redeemable after five years.
Under the rescue plan, the Austrian government will provide an unlimited guarantee to private savings deposits and accounts through the end of 2009, and thereafter up to €100,000. In addition, the government has earmarked €85 billion to lend to financial institutions with illiquid assets (posted as collateral), and an additional €15 billion to invest directly into financial institutions facing liquidity problems.
This news of Austria’s capital infusion into Erste comes approximately one week after the bank, together with a consortium of other Austrian banks and the Austrian central bank, provided a combined €400 million in assistance to ailing Austrian bank Constantia Privatbank AG.