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02.12.2003

Bank Austria Creditanstalt takes legal steps against "Lex Treichl"

Bank Austria Creditanstalt (BA-CA) is taking legal steps, on the basis of cartel law and banking law, in respect of the establishment of a group of credit institutions between Erste Bank and the Austrian savings banks which are members of the "s Haftungsverbund" cross-guarantee system. In this context, Bank Austria Creditanstalt has submitted a statement of facts to the Austrian Financial Market Supervisory Authority (FMA) and has filed a complaint with the European Commission on the grounds of infringement of European legislation, and it has also filed a complaint with the Austrian Federal Competition Authority on the grounds of infringement of Article 81 of the EC Treaty. Bank Austria Creditanstalt has taken these measures so that the competent authorities may examine the lawfulness of the "s Haftungsverbund" cross-guarantee system and the practice applied by Erste Bank.

Detailed legal opinions available to Bank Austria Creditanstalt show that the "s Haftungsverbund" ("s Haftungsverbund und Kundenabsicherungs-GmbH“), the members of which are Erste Bank and another 53 Austrian savings banks, violates European cartel law, and that the full inclusion of these 53 savings banks in the statement of the Erste Bank Group's capital resources violates the Austrian Banking Act and the EU directive relating to the business of credit institutions (Directive 2000/12/EC). These violations of law significantly affect competition between Erste Bank and other banks from Austria and from other EU member states.

According to media reports, the consolidation of capital resources of the 53 savings banks which are members of the cross-guarantee system results in additional Tier 1 capital of EUR 290 million being available to Erste Bank. In its interim report as at 30 June 2002, Erste Bank states (on page 9) that the inclusion of the savings banks forming part of the cross-guarantee system "is expected to have a positive effect of about 50 – 60 basis points on the tier 1 ratio" (of the Erste Bank Group). Given Erste Bank's current Tier 1 capital ratio (including consolidation) of about 6.2 per cent (statements in media reports), this may be regarded as a significant advantage, all the more so as the Tier 1 capital ratio is of great importance to the rating. 

The Managing Board of Bank Austria Creditanstalt has decided to take legal steps against these violations of rules on competition in order to safeguard the interests of BA-CA's shareholders. The legal opinions available to Bank Austria Creditanstalt give the following picture:


1. The facts:

On 1 January 2002, Erste Bank and 53 other savings banks concluded a framework agreement and established the above-mentioned "s Haftungsverbund" cross-guarantee system.

The Austrian Cartel Act was changed with effect from 1 September 2002; pursuant to this change, restrictions of competition between members of a group of credit institutions were exempted from the general ban on cartels and (on the basis of the legal transitional provisions) in the case of the "s Haftungsverbund" cross-guarantee system also from merger control. 

At the same time the Austrian Banking Act was amended. With this amendment – repeatedly referred to in the Austrian media as "Lex Treichl" – subsection 2a was inserted in Section 30 of the Austrian Banking Act. This subsection permits a central credit institution and the credit institutions associated with it to form a group of credit institutions. 

This had the following consequences:

  • The standardisation of business and market policies as well as mutual support in the case of financial difficulties of the members were established. 
  • The Erste Bank core group and the savings banks which are members of the cross-guarantee system together form (in the opinion of Erste Bank) an extended group of credit institutions.
  • According to media reports, the consolidated Tier 1 capital of the Erste Bank Group thus increased by EUR 290 million, an amount equal to 12 per cent of the capital of the Erste Bank core group; Erste Bank consolidates the capital resources of the largely independent savings banks which are members of the cross-guarantee system.
  • The low(er) Tier 1 capital of the Erste Bank core group is thereby hidden because separate supervision of the core group's solvability and separate consolidation of the core group's capital resources are no longer performed. 

The examination by the lawyers has shown that the "s Haftungsverbund" cross-guarantee system violates Austrian national law and EU legislation in several respects.


2. Violations of cartel law

On the one hand, the amendment to the Austrian Cartel Act exempted restrictions of competition between members of a group of credit institutions from the ban on cartels. On the other hand, the establishment of a group of credit institutions was made subject to the control of concentrations (which means that if the relevant turnover thresholds are reached, such control may be performed only after previous release by the cartel court). Pursuant to a transitional provision in this context, the latter does not apply if the contractual obligations to form such a group of credit institutions were concluded – as in the case of the
"s Haftungsverbund" cross-guarantee system – before 1 September 2002. This means that the framework agreement on the "s Haftungsverbund" cross-guarantee system was fully exempted from the scope of application of the Austrian Cartel Act.

But despite the exemption under Austrian law, the framework agreement constitutes an agreement prohibited in accordance with Article 81 of the EC Treaty, which is directly applicable in the member states and thus takes precedence over national law.

The "s Haftungsverbund" cross-guarantee system violates Article 81 of the EC Treaty in particular by:

  • horizontally coordinating products and markets, terms and conditions, and marketing;
  • restricting competition between the savings banks involved;
  • influencing trade between countries through the standardisation of business and market policies and of banking products and through the Erste Bank Group's improved rating, based on the "s Haftungsverbund" cross-guarantee system, in international capital markets.

Agreements are void to the extent that they violate Article 81 of the EC Treaty.    


3. Violations of banking law

The inclusion of the savings banks which are members of the cross-guarantee system in the c alculation of consolidated capital resources of the Erste Bank Group violates Austrian national law (including the amendment to the Austrian Banking Act!) and European legislation in several respects. In particular:

  • Erste Bank does not hold an equity interest, or holds only a minority interest, in the majority of the savings banks which are members of the cross-guarantee system. And the framework agreement on the "s Haftungsverbund" cross-guarantee system does not give Erste Bank any rights of influence which would lead to control of the savings banks. The "s Haftungsverbund" does not form an economic entity. This is also the conclusion drawn by Moody's, the international rating agency, which analysed the
    "s Haftungsverbund" cross- guarantee system a few months ago: Moody's arrives at the conclusion that the Erste Bank Group cannot be considered fully as a business entity.
    The President of the Austrian Savings Bank Association underlined this assessment at a press talk held on 29 October 2003: the cross-guarantee system "is not a group" in the sense of top-down control being exercised. He said that Erste Bank wanted the savings banks to improve their results, but Erste Bank could not exercise influence on the savings banks which are members of the cross-guarantee system to comply with this wish, except in cases where members experience financial problems.
    Nevertheless, the Erste Bank Group includes in its consolidated Tier 1 capital minority interests of up to 100 per cent in non-controlled savings banks which are members of the cross-guarantee system. This is incompatible with the definition of capital resources ("own funds") under European legislation and also in the Austrian Banking Act, it is not admissible under European legislation and under the Austrian Banking Act, and therefore it is not permitted. Under EU legislation and the Austrian Banking Act, such inclusion of minority interests is only permitted in the case of a parent company / subsidiary relationship. 
  • At present there is no longer any separate supervision of solvency for the Erste Bank core group, and capital resources are no longer calculated on a sub-consolidated basis (Erste Bank core group), although this is mandatory under the EU directive relating to the business of credit institutions and under the Austrian Banking Act (even after the amendment).
  • The central provision for consolidation under the amendment to the Austrian Banking Act (Section 30 (2a) of the Austrian Banking Act) violates the respective provision contained in the EU directive relating to the business of credit institutions (first indent of Art. 54 (4) of Directive 2000/12/EC): the "significant influence" required under European legislation is not a requirement pursuant to the amendment to the Austrian Banking Act.

Enquiries: Bank Austria Creditanstalt Group Public Relations
Martin Hehemann, tel. +43 (0)5 05 05 57007;
e-mail: martin.hehemann@ba-ca.com