VZCZCXRO6652
PP RUEHIK
DE RUEHVI #0052/01 0131011
ZNR UUUUU ZZH
P 131011Z JAN 10
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 4009
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 VIENNA 000052 
 
SIPDIS, SENSITIVE 
 
TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/MAIER 
TREASURY PASS TO FEDERAL RESERVE AND SEC/E. JACOBS 
 
E.O. 12958: N/A 
TAGS: EFIN AU
SUBJECT: Austrian Government to Nationalize Central Bank Minority 
Shares 
 
REF: 09 VIENNA 1583 
 
VIENNA 00000052  001.2 OF 002 
 
 
Sensitive but unclassified -- protect accordingly. 
 
¶1. (SBU) SUMMARY: Finance Minister Josef Proell plans to purchase 
the 30% of shares in Austria's central bank (Nationalbank/OeNB) 
which are currently owned by private Austrian banks/insurers and 
Austria's Economic Chamber.  Proell argues that central bank 
ownership by private banks and insurance companies (a relic of 
Austria's post-war "social partnership") is incompatible with the 
OeNB's growing role as a financial supervisor.  Coalition partner 
SPOe and Austria's opposition parties like the idea; private 
shareholders expressed misgivings and outright opposition in the 
case of the Economic Chamber.  While the OeNB's independence is 
guaranteed by law, the move should be viewed in the light of 
government profit-taking in recent years, which has depleted the 
Nationalbank's reserves.  END SUMMARY. 
 
Central Bank Shareholder Structure 
- - - - - - - - - - -- - - - - - - - 
 
¶2. (U) On January 11, Finance Minister Josef Proell (OVP) proposed 
that the GoA take full ownership of the Austrian Nationalbank 
(OeNB), Austria's central bank and an integral part of the 
Eurosystem and European System of Central Banks (ESCB). 
 
¶3. (U) The Nationalbank/OeNB is a public stock corporation with EUR 
12 million share capital.  Its current shareholders are: 
-- Austrian government (70.3%) 
-- Raiffeisen banking group (9.7%) 
-- Economic Chamber (8.3%) 
-- B&C Holding (4.3%) -- a Bank Austria trust fund for the bank's 
shareholding in various firms including the OeNB 
-- five insurance companies (4.7%) 
-- Federation of Austrian Industry (2.0%) -- a lobbying group for 
large companies 
-- Other institutions (0.8%) 
 
Justification and Initial Reactions 
- - - - - - - - - - - - - - - - - - 
 
¶4. (U) Proell argued that the OeNB's shareholder structure is 
anachronistic and a barrier to effective oversight.  The OeNB's role 
in bank supervision is incompatible with those same private banks 
and insurance companies holding shares in a supervisory authority, 
according to Proell.  Proell hinted that the financial crisis and 
specifically poor oversight of troubled Hypo Alpe Adria (reftel) 
gave the idea the final push.  Proell reportedly is willing to pay 
up to EUR 50 million for the outstanding 30% shares 
 
¶5. (U) The SPOe and Austria's opposition parties (FPOe, Greens, 
BZOe) have regularly sought full nationalization of the OeNB in 
recent years; all indicated approval of Proell's plan as a first 
step towards broader reform of finance.  In contrast, most of the 
OeNB's current private shareholders (who are being asked to sell) 
expressed reluctance; the Federal Economic Chamber is against the 
plan. 
 
Background on Central Bank Structure 
- - - - - - - - - - - - - - - - - - - 
 
¶5. (U) In recent years, the "social partnership" shareholder 
structure of the OeNB has eroded to the benefit of the GoA.  As part 
of post-war reconstruction, the OeNB was constituted with 
shareholding by employer and labor federations along with banks 
allied with either the conservative or social-democratic camps. 
Until the late 1990s, the OeNB's shareholder structure was as 
follows: 
GoA 50% 
-- Austrian Trade Union Federation and Federal Economic Chamber / 
each 8.3% 
-- Federation of Austrian Industry 2.0% 
-- BAWAG-PSK banking group 11.9% 
-- Raiffeisen banking group 9.6% 
-- five insurance companies 4.7% 
-- Bank Austria 4.3% 
-- Other institutions 0.8%. 
In 2006, the shareholder structure changed significantly following 
the near collapse of BAWAG-PSK, when BAWAG-PSK and its then-owner 
(the Austrian Trade Union Federation) were induced to sell their 
central bank shares to the GoA. 
 
COMMENT 
- - - - 
 
¶6. (SBU) Given the support of the other parties, Proell should have 
no political problems nationalizing the central bank.  Under the 
OeNB Act, each transfer of shares requires only the express approval 
 
VIENNA 00000052  002.2 OF 002 
 
 
of the OeNB's General Meeting: thus Proell's plan does not entail 
any legal changes, but the GoA does need to bring current 
shareholders on its side (none can be compelled to sell its stake, 
except by moral suasion). 
 
¶7. (SBU) The move will symbolically bring the OeNB into the 
international mainstream (since most central banks worldwide are 
owned by governments) and was portrayed in media outlets as a 
positive assertion of government authority following poor oversight 
of Hypo Alpe Adria by the OeNB/FMA.  Practically nothing will change 
in the distribution of OeNB revenues -- since the GoA already takes 
97% of central bank profit (see below) -- and nationalization does 
not directly threaten central bank independence, which is guaranteed 
by Austrian law and the ECB charter.  In the Austrian context, 
however, the move will raise several issues: 
 
-- In Austria, central bank independence was traditionally bolstered 
by having shareholders on "both sides" of the political fence (even 
when one political party controlled the government). 
 
-- A new shareholder structure will entail personnel changes on the 
OeNB General Council (the bank's supervisory board).  As 100% owner, 
only the GoA will appoint members to the bank's General Council. 
Currently, the GoA appoints the President, the Vice President and 
six members of the General Council, while the General Meeting of all 
shareholders appoints the other six members. 
 
-- The biggest question is how much revenue the OeNB can retain to 
bolster reserves.  Legal changes implemented in 1997 stipulate that 
the GoA gets 90% of the OeNB's after-tax profit (even though it 
holds just 70% of the shares); the remaining 10% is paid as dividend 
payments, of which the GoA gets another 70% take.  That profit 
structure, and GoA pressure on the OeNB in past years to distribute 
as much profit as possible, have led to a partial depletion of OeNB 
reserves.  Since 1999, the OeNB's core capital ("own funds") has 
fallen by half, to less than EUR 15 billion.  As the central bank's 
2008 annual report puts it: "...changes in the legal framework for 
the OeNB and high profit transfers in previous years have markedly 
reduced the OeNB's reserves.  In the long run, the OeNB's earning 
power and risk-bearing capacity do have their limits."  END 
COMMENT. 
 
EACHO