BayernLB chief quits over crisis at Austrian unit

by Andy Salcedo, Asnycnow Radio Host

The CEO of German public-sector bank Bayerische Landesbank, Michael Kemmer, has resigned just hours after the Austrian government said it was taking full control of the German bank’s troubled Austrian unit.

Kemmer stepped down after Austria nationalized the Hypo Group Alpe Adria (HGAA) based in Klagenfurt, Austria. The lender, a unit of Germany’s BayernLB bank, was on the brink of collapse after suffering huge losses linked to loans in Southeast and Eastern Europe.

Vienna is taking a two-thirds share in HGGA, Austria’s sixth largest bank, for the symbolic price of one euro. Bavarian State Premier Horst Seehofer said Bayern LB’s total loss in the transaction totaled 3.75 billion euros.

Earlier, Seehofer, hinting at Kemmer’s demise, had warned that there would be consequences for the failed involvement in HGAA.

The 52-year-old Kemmer had been head of BayernLB since early 2008.

HGAA was said to have been close to collapse several times, which would have had far-reaching consequences for the Austrian and the southeast European banking sector, in particular.

The finance ministers of Austria and the southern German state of Bavaria both said on Monday that the nationalization of HGAA was unavoidable, as the troubled lender was again on the verge of bankruptcy.

The announcement came after a deal was reached for HGAA’s owners – the German majority stakeholder BayernLB bank, Austrian mutual insurer Grazer Wechselseitige, and the state of Carinthia – to contribute over a billion euros ($1.46 billion) to the troubled bank.

According to Austria’s finance ministry, Vienna will take a two-thirds majority stake in the bank for the symbolic price of one euro.

Owners “must contribute” to deal

It had been suggested that the southern German state of Bavaria was looking to offload HGAA on Austria for free. Vienna insisted, however, that any state aid from Austria would depend on substantial participation of HGAA’s shareholders.

Georg Fahrenschon, Bavaria’s finance minister, speaking after marathon negotations with his Alpine neighbors, defended the Austrian takeover of HGAA, even if the deal meant writing off up to 825 million euros.

“The move allows [BayernLB], together with the Austrian government and HGAA’s other stockholders, to save an organization of central importance for the entire southern European banking system,” Fahrenschon said.

It was also Fahrenschon who accepted Kemmer’s request to resign and who installed his deputy, Stefan Ermisch, as interim CEO for Bayerische Landesbank.

BayernLB is Bavaria’s state bank and the eighth largest financial institution in Germany. It holds a stake of over 67 percent of HGAA, while Grazer Wechselseitige holds over 20 percent; the Austrian state of Carinthia holds over 12 percent and HGAA employees less than one percent.

Last month, the HGAA group announced it was in danger of going bankrupt after capital injections it received from the Austrian government and shareholders over the past 12 months were close to depleted.