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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVI #3605/01 3561023
ZNR UUUUU ZZH
R 221023Z DEC 06
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 5843
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 VIENNA 003605 
 
SIPDIS 
 
SIPDIS 
 
PASS TREASURY FOR OASIA/ICB/VIMAL ATUKORALA 
TREASURY ALSO FOR OCC/EILEEN SIEGEL 
TREASURY ALSO PASS FEDERAL RESERVE 
USDOC PASS TO OITA 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
 
E.O. 12958: N/A 
TAGS: ECON EINV ECIN EFIN ETRD EUN AU
SUBJECT: Austria's Raiffeisen - A Domestic and Regional Heavyweight 
 
REFS:  A) VIENNA 42  B) VIENNA 1190 
 
 
Summary 
------- 
 
¶1.  The Raiffeisen Association is a commercial heavyweight within 
Austria, with wide-ranging and diverse business holdings.  Its 
business interests permeate Austria's economy, with impressive 
holdings in the banking, investment, insurance, dairy, media, and 
retail sectors.  By virtue of its commercial activities in Central 
and Eastern Europe and Southeastern Europe (CEE/SEE), it is also an 
important regional player.  A Raiffeisen subsidiary, Raiffeisen 
International, is among the five largest foreign banking groups in 
CEE/SEE.  However, the activities of Raiffeisen in the region have 
occasionally been controversial, such as Raiffeisen Investment AG's 
role in the RosUkrEnergo joint venture in Ukraine.    End Summary. 
 
 
The Raiffeisen Sector - A Commercial Heavyweight 
--------------------------------------------- --- 
 
¶2.  The Raiffeisen sector has its origins in the ideas of Friedrich 
Wilhelm Raiffeisen (1818-1888) to establish agricultural 
cooperatives.  Some 130 years later, Raiffeisen is still important 
for agriculture, but it has expanded into a wide variety of sectors. 
 It is an important player in Austria's economy, with 2 million 
cooperative members, 50,000 employees and 4 million customers. 
There is often an interlocking relationship between the Raiffeisen 
companies through intra-Raiffeisen shareholdings and through mutual 
shareholdings in outside firms. 
 
¶3.  The Raiffeisen Group's umbrella organization is the Raiffeisen 
Association, which consists of a banking group, a warehouse and 
trading group, and a dairy group, as well as some 700 other 
cooperatives, shareholdings, and separate controlling organizations. 
 The Association engages in lobbying, public relations and 
representation for Raiffeisen. 
 
 
The Raiffeisen Banking Group (RBG) - Austria's Largest 
--------------------------------------------- --------- 
 
¶4.  The Raiffeisen Banking Group (RBG) operates the largest banking 
network in Austria.  It has three layers:  570 autonomous local 
banks with 1,700 branches; above the local banks, there are eight 
regional Raiffeisen banks, which aside from regular banking business 
also perform clearing and service functions for the local banks 
within their area; and on top, the Raiffeisen Zentralbank (RZB), a 
universal bank, which also provides central services for the entire 
RBG.  The 570 local Raiffeisen banks are the shareholders of the 
eight regional banks, which together hold 88% in RZB.  Other RZB 
shareholders include the Raiffeisen warehouse and trading company 
RWA, the UNIQA insurance company and four other Austrian banks.  The 
RBG's 2005 balance was Euro 178 billion, equal to 25% of total 
Austrian bank assets. 
 
¶5.  RZB, Austria's third largest bank, operates a huge international 
network and, through its subsidiaries, is one of the main players in 
Central and Eastern Europe and Southeastern Europe (CEE/SEE).  It 
has the strongest Asian presence of all Austrian banks and has 
finance and representative offices in Western Europe and the U.S. 
However, the most important part of RZB's international network is 
in CEE/SEE, where it operates via its subsidiary Raiffeisen 
International (RI).  RZB holds a 70% share in RI, institutional 
investors 20% and private investors the remaining 10%.  RI's CEE/SEE 
banking network comprises 16 subsidiary banks and numerous finance 
and leasing companies with 2,400 branches and 10 million customers 
in Albania, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the 
Czech Republic, Hungary, Kosovo, Poland, Romania, Russia, Serbia, 
Slovakia, Slovenia and Ukraine.  RI, among the five largest foreign 
banking groups in the region, is the number one foreign bank in 
Albania, Bosnia-Herzegovina and Serbia; number two in Ukraine; 
number three in Slovakia; number four in Croatia, and the fifth 
largest foreign bank in Bulgaria. 
 
¶6.  RZB's financial statement lists significant holdings in more 
than 70 companies, including: 
-- Centro Bank (100%), an issuing and M&A bank; 
-- Raiffeisen Investment AG (RIAG) (100%), the RBG's CEE investment 
and financial advisory company with subsidiaries and representative 
offices in CEE and Central Asia; 
-- Raiffeisen Leasing (100%); 
-- Raiffeisen Bausparkasse (37%), one of the four home loan 
societies in Austria with subsidiaries in Croatia, the Czech 
 
VIENNA 00003605  002 OF 003 
 
 
Republic, Romania and Slovakia; 
-- Raiffeisen Kapitalanlage (KAG) (50%), a specialist in issuing and 
managing investment funds; 
-- UNIQA insurance company (31.9%), Austria's leading insurance 
group, with subsidiaries in Germany, Italy, Switzerland, 
Liechtenstein, and CEE; and 
-- VISA credit card company (25%). 
 
¶7.  RZB also holds shares in approximately 50 companies that are not 
included in its consolidated financial statement, including Austrian 
Airlines (3.4%), Vienna Stock Exchange (6.1%), Budapest Stock 
Exchange (6.4%), Austrian National Bank (8.8%), Austrian 
Kontrollbank (9.8%), OEPAG pension fund (16.3%), and Volksbanken 
(Austria's fifth largest banking group, 5.7%). 
 
 
Two Important Regional Raiffeisen Banks 
--------------------------------------- 
 
¶8.  The two most important regional Raiffeisen banks, the 
Raiffeisenlandesbank (RLB) Upper Austria and the RLB Lower 
Austria-Vienna, are among the ten largest banks in Austria. 
Together with the 118 local Raiffeisen banks under its umbrella, RLB 
Upper Austria forms the largest local banking group in Austria.  It 
holds shares in 145 banks and financial institutions and 249 
non-financial sector entities, and has subsidiaries in Southern 
Germany and the Czech Republic.  RLB Lower Austria-Vienna holds 
shares in banks in the Czech Republic, Hungary and Slovakia. 
 
 
The Raiffeisen Warehouse and Trading Group 
------------------------------------------ 
 
¶9.  The warehouse and trading group consists of Raiffeisen Ware 
Austria (RWA), a wholesale and services company, and 100 Raiffeisen 
warehouse cooperatives, for which RWA acts as umbrella.  RWA 
shareholders are the Austrian RWA asset management company (50%) and 
the German BayWa group (50%).  The group takes in over two-thirds of 
Austria's grain and crop harvest.  RWA has shareholdings in more 
than thirty Austrian companies. 
 
 
The Raiffeisen Dairy Group 
-------------------------- 
 
¶10.  The dairy group consists of 15 large dairies in Austria and an 
additional 150 dairy processing cooperatives.  The group has a 99% 
market share for fresh milk, 95% for butter, 80% for yoghurt and 85% 
for hard cheese. 
 
 
Other Raiffeisen Cooperatives and Shareholdings 
--------------------------------------------- -- 
 
¶11.  There are over 700 cooperatives, which are members of the 
Raiffeisen Association.  The most important is the Raiffeisen 
Holding Lower Austria-Vienna (RHLAV).  Its 198 cooperative members 
are the local Raiffeisen banks and warehouse and agricultural 
cooperatives of Lower Austria.  RHLAV is the largest shareholder of 
RLB Lower Austria-Vienna (78.6%) and manages a network of 200 
shareholdings in domestic and foreign companies in banking, 
industry, media, real estate and services.  Indirectly, via RLB 
Lower Austria-Vienna, RHLAV also is a shareholder of RZB and RI. 
RHLAV has its most important shareholdings in dairies, Casinos 
Austria, milling and flour companies in Austria and neighboring 
countries, Europe's largest sugar company (Germany's Suedzucker), 
construction firms and media. 
 
 
Raiffeisen's Interest in Media 
------------------------------ 
 
¶12.  RHLAV, RZB and UNIQA together hold 50.1% in the KURIER 
newspaper, Austria's second largest daily.  KURIER in turn holds 
shares in the NEWS publishing house and the KRONEHIT radio station. 
RHLAV holds shares in the SAT.1 radio company (33%), ORS 
broadcasting transmitter company (40%) and the Lower Austrian 
publishing house (20%), the largest print media enterprise in Lower 
Austria.  The Raiffeisen sector also has shareholdings in the Upper 
Austrian publishing house and in several private local radio 
stations. 
 
 
UNIQA Insurance 
--------------- 
 
VIENNA 00003605  003 OF 003 
 
 
 
¶13.  Another important component of Raiffeisen is UNIQA, Austria's 
leading insurance group with a 22% market share and subsidiaries in 
Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Republic, Germany, 
Hungary, Italy, Liechtenstein, Poland, Romania, Slovakia, Slovenia, 
Switzerland, and Ukraine.  RZB holds 31.9% in UNIQA and Raiffeisen 
syndicates hold another 42%.  UNIQA is in turn a shareholder in RZB, 
a major construction group and the KURIER newspaper. 
 
 
Raiffeisen's Political Influence 
-------------------------------- 
 
¶14.  Raiffeisen has often exerted considerable political influence, 
albeit usually discretely behind the scenes.  There is a strong 
connection to Austria's center-right People's Party (OVP).  In the 
outgoing parliament, 7 of the OVP's 79 MPs had a Raiffeisen 
background.  Particularly well-connected Raiffeisen and former 
Raiffeisen players include Christian Konrad, Chairman of the 
Raiffeisen Association; Walter Rothensteiner, CEO of RZB; and Karl 
Stoss, CEO of Casinos Austria and a former RZB Executive Board 
Member. 
 
 
Negative Press Surrounds Raiffeisen's Ukrainian Venture 
--------------------------------------------- ---------- 
 
¶15.  The Raiffeisen banking sector's international activities have 
occasionally raised negative attention.  RosUkrEnergo (RUE), a joint 
venture between RZB subsidiary RIAG and Gazprom, facilitated the 
resolution of the January 2006 gas dispute between Russia and 
Ukraine (reftels).  Negative press surrounded RIAG's role as a 
trustee for an unknown beneficial owner in RUE.  In May 2006, the 
beneficial owners revealed their identities: Ukrainian businessmen 
Dimitry Firtash (90%) and Ivan Fursin (10%).  Austrian and Ukrainian 
press reports linked Firtash to organized crime figures in the 
region.  In summer 2006, RIAG withdrew from the RUE joint venture. 
 
 
Trading With North Korea 
------------------------ 
 
¶16. In June 2006, the F.J. Elsner Trading Company, a 100% subsidiary 
of RZB and barter trade specialist for CEE, the Middle East, and Far 
East, participated in a trade mission to North Korea.  Elsner 
reportedly signed a contract with Pyongyang's Railroad Ministry to 
deliver rails in exchange for cash (1/3) and scrap metal (2/3). 
Elsner will reportedly export the scrap metal to China.  The deal 
could double Austrian exports to North Korea from the 2005 level of 
$2.5 million. 
 
MCCAW