Austrian upside-down Swiss banking

After publishing the warning Moody’s credit rating agency issued on Austria’s Raiffeisen bank, the owner of the Serbian media outfit Kurir became a target of personal attacks by the Deputy President of the Raiffeisen Bank Executive Board, Zoran Petrovic, who exposed private information about the owner that, to be nice, stretches the accepted decorum of a client-bank relationship.

“We tried to publish a dementi, but the newspaper didn’t want to do it and we are forced to bring charges against the newspaper and the journalist who wrote the article,” said Petrovic during the Round Table organized by Ekonomist Media Group in Belgrade, a gathering designed to declare that Serbia’s banking system is liquid and that Raiffeisen leads the way in the liquidity.

Then the Raiffeisen Deputy unleashed the client’s dirty laundry saying that Kurir’s motive for publishing Moody’s findings is “because the owner of Kurir was part of the ownership structure of a company that had a loan in Raiffeisen Bank and hadn’t paid its obligations for several months already.”

Even in the more primitive days, banks were courteous never to nail lists, like Luther during his Reformation campaign, of clients who did not pay their bills. Did we only think that banks are suppose to show some modicum of respect for private personal information?

Raiffeisen’s upside-down Swiss banking where client’s dirty laundry on privileged information is exposed by a bank should red-flag anyone with a loan at the Raiffeisen that, hey, perhaps you are next unless you help us in a bail out.

And Raiffeisen is everywhere in Eastern Europe: Russia, Ukraine, Poland, Albania, Serbia, Bulgaria, Romania… so much so that 80% of Raiffeisen banking empire profit came from the region last year.

In fact, nearly 57% of Raiffeisen’s total assets are in Eastern Europe and the ex-Soviet countries and as this region implodes so has its stock price.

Of course, like any bank, Raiffeisen wants to stop the downward reinforcing loop but the revelations of client’s dirty financial laundry, at least to a stock trader, says loudly and clearly: short the stock and make more money on Raiffeisen’s misery.

Why else would Austrian government decide to pump in money into Raiffeisen unless the bank is seen as a systemic risk? Austrian banks have over $378 billion is assets in Eastern Europe while the value of everything that Austria makes is, according to the CIA, less then that ($322 billion).

Says The Wall Street Journal:

“The bank has asked Austria’s Finance Ministry to buy preferred shares of Raiffeisen valued at €1.75 billion in a capital-raising measure. The coupons would pay 9.3% annual interest and must be repaid within five years, Austrian Finance Ministry spokesman Harold Waiglein says… Raiffeisen says the loan shouldn’t be seen as a rescue package but as capitalization that will allow it to continue operations in Eastern Europe.”

So, does Raiffeisen mean to say that, right now, they cannot do business in Eastern Europe and that without the €1.75 billion it would close shop immediately? And how long will Austrian €1.75 billion keep Raiffeisen resuscitated? What about €1.75 billion from other countries Raiffeisen has presence in, some of which face national bankruptcies.

If we are to believe Nouriel Roubini, who correctly predicted the ongoing financial calamity, Raiffeisen may be one or two sovereign defaults away from a collapse.

“The banking problem in Europe is becoming more severe,” Roubini told Bloomberg and then cited Hungary, Belarus and Ukraine, all countries where Raiffeisen banks, for possible national bankruptcies.

No wonder then that the Serbian central bank came out yesterday with a stern condemnation of the media scolding “that inadequate and unprofessional presentation of reports in foreign media about the financial sector can undermine the trust that this sector is based on. Moreover, media people should assume maximum responsibility for the damage that such unprofessional writing may cause.”

Well, yeah… Serbia’s central bank may be correct that Moody’s has misrepresented risk again but the question is whether Moody’s is now behind the curve like when it protected banks from the toxic assets that are devastating the globe now or has it made a computer error!

During the scolding, Serbia’s central bank made sure to touch upon Raiffeisen talking points: that, at 23% of capital to asset ratio, Raiffeisen in Serbia is liquid, that bank deposits are coming back after “withdrawal of the substantial amount of savings in October 2008″ and “there is no reason for clients of any bank operating in Serbia to ‘fret about their deposits and the safety of transactions’.”

So why is Serbia’s central bank up in arms defending an Austrian banking outfit?

Sure enough, Raiffeisen is a leader in Serbia sporting a huge loan portfolio that, we hope, is doing many people lots of good.

Yet one should be little more weary during Deputy sit-ins at the Round Tables as the banking Deputy tells the central bank Deputy that during the last crisis in October “Raiffeisen bank didn’t have to draw finances from the headquarters in Vienna” because for the next wave of the financial crises, some banks may have to draw finances from Serbia back to Vienna.