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Bank Austria Ag Business Information, Profile, and History

Vordere Zollamtsstrasse 13
A-1030 Vienna
Austria

History of Bank Austria Ag

With over one-fifth of the nation's banking business, Bank Austria AG is Austria's largest and most profitable banking group. Formed through the October 1991 union of Zentralsparkasse und Kommerzialbank Wien (Z-Bank) and Österreichische Länderbank (ÖLB or Länderbank), the financial institution boasts nearly 300 offices nationwide and an additional 40 outlets around the world. Bank Austria leads all the nation's financial segments, including retail, commercial, private, asset management, investment banking, trade finance, and insurance. In late 1997 its assets totaled AS 1.4 trillion (US$109 billion). Due to its substantial investments over the decades, it also ranked as Austria's largest private holding company, but was divesting non-bank interests in the mid- to late 1990s.

The institution has more than just size in its favor; due in part to a deposit guarantee by the City of Vienna, it enjoys a stellar credit rating. Moody's Global Finance placed it among the world's twenty safest banks, and it earned the titles of "Best Bank in Austria" and "Best Security Firm in Austria" from trade magazine Euromoney every year from 1993 through 1996. While it has operations throughout the world, Austria remains its key market.

Bank Austria's equity is controlled by a group of governmental and institutional investors including the Anteilsverwaltung Zentralsparkasse (AV-Z), a foundation owned by the City of Vienna, with a 45 percent share; the federal government of Austria, which holds a 19 percent stake; Germany's Westdeutsche Landesbank Girozentrale (WestLB), with ten percent; Italy's Cariplo (the world's largest savings bank), with 5.6 percent; and the Wiener Städtische Austrian insurance group, with about ten percent.

Foundations and Development

Bank Austria was created in 1991, when Zentralsparkasse und Kommerzialbank Wien (Z-Bank) absorbed Österreichische Länderbank (ÖLB or Länderbank). ÖLB was the older of the two banking groups. It was founded in November 1880 as k.k. privilegierte Österreichische Länderbank, a subsidiary of France's Société de L'Union Genérale. Länderbank was spun off from the parent company in 1882, and opened its first branch bank in Paris in 1882. The Austrian bank later established branch locations in Prague, London, Bolzano, and Pilsen.

Over the course of its development, Länderbank came to emphasize commercial and retail banking as well as securities trading. The establishment came under state control in 1946, and although privatization began in 1956, the federal government still owned a controlling stake in Länderbank through 1990. By that time, ÖLB was the nation's fourth-largest financial institution, with 4,200 employees, 1.1 million accounts, 140 domestic offices, and 24 foreign offices.

Though younger, Z-Bank had grown to become the larger of the two merged banks. It had been founded in 1905 by a resolution of the Vienna City Council and opened its headquarters branch there in 1907. Over the course of its first quarter-century in business, the institution built 23 offices throughout Vienna and captured one-fifth of the capital city's savings accounts. Z-Bank was transformed into a joint stock company in 1990, with 90 percent of its shares held by the City of Vienna's AV-Z trust and the remaining ten percent in the hands of institutional investors. Its liabilities continued to be guaranteed by the City of Vienna even after the merger with Länderbank.

By the time of the merger, Z-Bank was Austria's largest savings bank, and Europe's seventh-largest financial institution overall. In addition to its nearly 1,300 offices in Austria, the bank had branches in Milan, London, Tokyo, Frankfurt, Moscow, Paris, and Prague.

1991 Banking Consolidation in Austria

The 1991 union of these two massive banks was perceived as a first step to relieving what Euromoney called an "over-banked, over-branched, and over-staffed" Austrian banking industry. Under the chairmanship of Rene Alfons Haiden, it took five difficult years to consolidate and rationalize the two banks' operations. Dozens of branches were shuttered, and group employment was reduced by nearly 11 percent, from 9,929 in 1991 to 8,867 by the end of 1996. Productivity (in terms of pre-tax net per employee) doubled during the period, from AS 292,000 to AS 586,000. Assets increased 44 percent to AS 742 billion, and operating profit jumped 80 percent to AS 5.2 billion. During that time, however, Bank Austria's return on equity fluctuated between four percent and seven percent, and its share price reflected that vacillation. Nevertheless, the merger was, according to the Economist, "widely seen as a success."

Having advanced through Zentralsparkasse and served as deputy chairman of Bank Austria from 1991, Gerhard Randa became chairman of the group in 1995. Nicknamed "Rambo" by his colleagues in the Viennese banking community, the Harley-Davidson aficionado was known as an "aggressive deal maker" whose zeal sometimes got him in trouble. Such was the case with Bank Austria's 1994 acquisition of third-ranking GiroCredit Bank Aktiengesellschaft der Sparkassen. Although the two institutions were considered a logical fit, Bank Austria divested its holdings in GiroCredit in 1997. Though acquisitions took center stage during Randa's tenure, he continued to emphasize efficiency, telling Euromoney that "The key element to our strategy is productivity," in a June 1996 interview.

1997 Union with Creditanstalt

The ongoing restructuring of Austria's banking industry also entailed privatization of long-held government positions in key banks. In 1997 Bank Austria beat Italian, German, American, and domestic rivals with an AS 17.2 billion (US$1.5 billion) bid to acquire the federal government's 70 percent stake in the Creditanstalt-Bankverein. Known as Austria's most worldly bank, Creditanstalt was founded by the wealthy Rothschild family and later ranked among Europe's largest banks. It was at one time so influential that some historians assert that its 1931 crash triggered the Great Depression.

The merger agreement kept the venerable bank in Austrian hands, but came with some strings attached. For example, the government-brokered deal required that Creditanstalt "remain a separate legal operating entity for five years and that no targeted staff reductions may be undertaken by Bank Austria." This factor seemed to preclude many potential cost savings and economies. As the Economist pointed out in May 1997, "Instead of weeding out wasteful duplication, the two banks will continue to compete, even where they have branches side by side." Institutional Investor's Giles Peel noted that the deal, which was supposed to have privatized Creditanstalt, "effectively postponed the long-awaited privatization" by merely transferring ownership of Austria's best-known bank from the federal government to the municipal government of Vienna, which still indirectly owned 45 percent of Bank Austria. (In fact, the federal government continued to own 19 percent of Bank Austria through the end of 1997.)

Early in 1997, Austria's coalition government outlined a privatization program through which the City of Vienna's Anteilsverwaltung Zentralsparkasse (AV-Z) foundation would reduce its 45 percent stake in Bank Austria to less than 25 percent within five years. Progress toward that goal was hindered that June, when the bank revealed that minority stakeholder Westdeutsche Landesbank Girozentrale (WestLB) of Germany, which already owned just over ten percent of Bank Austria, enjoyed right of first refusal over any shares divested by AV-Z before the end of 2001. Analysts observed that this factor would likely prevent AV-Z from selling any equity in order to preclude the German bank from becoming the majority owner of Austria's flagship bank.

Randa also quickly sidestepped the government's requirement that Creditanstalt remain independent by integrating international operations as well as the two institutions' investment banking subsidiaries. He also expected to achieve some economies by unifying back office operations, a process that was forecast for completion by the end of 1999. Thus, while the Creditanstalt name and legal entity persisted, many operations were merged.

The Late 1990s and Beyond

Chairman Randa's strategy for the future targeted expansion into eastern and central Europe and Asia. Hoping to apply Bank Austria's extensive privatization and initial public offering experience (the institution had participated in the launches of British Petroleum, British Telecom, Wellcome, Adidas, and many Austrian firms) in former communist countries, Randa established operations in Slovenia, the Czech Republic, Hungary, Poland, Russia, and Croatia. By mid-1997, Bank Austria was the leading foreign bank throughout eastern and central Europe.

Principal Subsidiaries: Bank: BA Treuhand AG f. Immob. & Bet. Fonds; VISA-Service Kreditkarten AG; BA-Handelsbank AG; BA Wohnbaubank AG; Investmentbank Austria AG; EB und HYPO-Bank Bergenland AG; BANKINVEST Austria GmbH; ÖCI-GZB BeteiligungsgmbH; ÖKB-HoldinggmbH; Investkredit Holding GmbH; Europay Austria Zahlungsverkehrssysteme GmbH; BA Leasing GmbH; BA Leasing Holding 2 GmbH; BA Finanzservice GmbH; BA Teleservice GmbH; BA AG-Immobilien u. Mobilien-vermietungs OHG; DATASERVICE Invormatik GmbH; DATASERVICE Org. u. Datenverarb. GmbH; Garage AM Hof GmbH; GANYMED Immob. GmbH; HYPERION Immob. GmbH; Lassallestr. Bau-, Planungs-, Errichtungs-und VerwertungsgmbH; GELDSERVICE Logistik für Wertgestionierung und Transport-koordination GmbH.; BA & GrECo Versicherungs-management GmbH; UNION Versicherungs-AG; Vereinigte Pensions-kasse AG Wiener Städtische Allgemeine Versicherung AG; BA (CR) a.s. (Czech Republic); BA (SR) a.s. (Slovakia); BA d.d. (Slovenia); EURÓPAI KERESKEDELMI BANK RT (Hungary); BA (Switzerland) Ltd.; BA Croatia d.d.; BA Cayman Islands Ltd.; LB Fonds BeratungsgmbH (United States); BA Property Investment Ltd. (United Kingdom). Non-Bank: BA Industrieholding GmbH; UNITECH AG; Wiener Betriebs- und Baugesmbh; Allgemeine Baugesellschaft-A. Porr AG; BA Handelsholding AG; USEA Umweltservice Austria GmbH; Colpack-Kolkoks-Wihoko Brennstoff-handel GmbH; Wiener Kühlhaus Frigoscandia GmbH; Center Nachrichtentechnische Anlagen GmbH; TSG EDV Terminal Service GmbH; Gewista WerbegmbH; Wiener Hafen und Lager Ausbau- und Vermögensverwaltungs-gmbH (WHV); Wiener Messen und Congress GmbH; Hotel & Touristik Holding AG; Heilbad Sauerbrunn BetriebsgmbH & CoKG; Palais am Stadtpark Hotel Betriebs GmbH & CoKG; Immobilien Holding GmbH; Wohnbauerrichtungs-und Verwertungs AG; ARWAG Holding-AG; Erste Wiener Hotel AG; Wiener BauträgergmbH; BA Wohnbau AG; Ekazent RealitätengmbH; Klea Terrain-und Bau-GmbH; Interring GmbH; IMMOTRUST Anlagen AG;

Related information about Bank

An organization which offers a wide range of services to do with the handling of money. Most banks are commercial banks, which keep money on behalf of their customers, lend it to them, and offer them such facilities as currency exchange, money transfer, credit facilities, mortgages, and investment advice. A central bank in a country (such as the Bank of England or the Banque de France) is the banker for the government, issuing money on its behalf and setting the chief interest rate for loans; it is much involved in the country's monetary policy. Merchant banks offer specialized services to businesses, such as managing shares, dealing in gold or foreign currencies, and providing funds to finance a new business. Savings banks were founded in the 19th-c to encourage people to save, small deposits being placed in interest-bearing accounts. There are also several international banks, which regulate currency matters between countries and handle international loans, notably the World Bank.

see :wiktionary:banker for more meanings.

A bank is a business that provides banking services for profit. Some banks (called Banks of Issue) issue banknotes as legal tender.

Currently in most jurisdictions the business of banking is regulated and banks require permission to trade. Authorisation to trade is granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide banking services without meeting the legal definition of a bank (see banking institutions).

Banks have a long history, and have influenced economies and politics for centuries.

The word bank is derived from the Italian banca, which is derived from a Germanic language and means bench. In recent history, with historically low interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments.

Services typically offered by banks

Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:

Taking deposits from their customers and issuing checking and savings accounts to individuals and businesses
Extending loans to individuals and businesses
Cashing cheques
Facilitating money transactions such as wire transfers and cashiers checks
Issuing credit cards, ATM cards, and debit cards
Storing valuables, particularly in a safe deposit box

Financial transactions can be performed through several different channels:

Branch
ATM
Mail
Telephone
Internet

Types of banks

Banks' activities can be characterised as retail banking, dealing directly with individuals and small businesses, and investment banking, relating to activities on the financial markets. However, some are owned by government, or are non-profit making.

In some jurisdictions retail and investment activities are, or have been, separated by law.

Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy.

Types of retail banks

Commercial bank, is the term used for a normal bank to distinguish it from an investment bank. After the great depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital markets activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community Banks are locally operated financial institutions that empower employees to make local decisions to serve their customers.
Community development bank are regulated banks that provide financial services and credit to underserved markets or populations.
Postal savings banks are savings banks associated with national postal systems.
Private banks manage the assets of high net worth individuals.
Offshore banks are banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
Savings bank In Europe, savings banks take their roots in the 19th or sometimes even 18th century. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises.

Building societies and Landesbanks both conduct retail banking.
Ethical banks are banks that prioritize the transparency of all operations and make only social-responsible investments.

Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade financing. For example, First Bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance.

Other types of banks

Islamic banks adhere to the concepts of Islamic law. Also, deposit makers earn a share of the bank?s profit as opposed to a predetermined interest.

Banks in the economy

Role in the money supply

A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.

However, it would not be prudent for a bank to lend out all of its balance sheet. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply.

Size of global banking industry

Worldwide assets of the largest 1,000 banks grew 15.5% in 2005 to reach a record $60.5 trillion. The large number of banks in the US is an indicator of its geographical dispersity and regulatory structure resulting in a large number of small to medium sized institutions in its banking system. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those that owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others.

Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.

Regulation

The combination of the instability of banks as well as their important facilitating role in the economy led to banking being thoroughly regulated. In addition, banks are usually required to purchase deposit insurance to make sure smaller investors are not wiped out in the event of a bank failure.

Another reason banks are thoroughly regulated is that ultimately, no government can allow the banking system to fail.

Public perceptions of banks

In United States history, the National Bank was a major political issue during the presidency of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-mongering, antithetical to the democratic ideals of the United States.

Currently, many people consider that various banking policies take advantage of customers. Specific concerns are policies that permit banks to hold deposited funds for several days, to apply withdrawals before deposits or from greatest to least, which is most likely to cause the greatest overdraft, that allow backdating funds transfers and fee assessments, and that authorize electronic funds transfers despite an overdraft.

In response to the perceived greed and socially-irresponsible all-for-the-profit attitude of banks, in the last few decades a new type of banks called ethical banks have emerged, which only make social-responsible investments (for instance, no investment in the arms industry) and are transparent in all its operations.

In the US, Credit unions have also gained popularity as an alternative financial resource for many consumers. Also, in various European countries, Cooperative banks are regularly gaining market share in retail banking.

Profitability

Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have. For example, the largest bank, Citigroup, which for the past 3 years has made more profit than any other company in the world, has only a 5% market share. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability).

Bank size information

Top ten banking groups in the world ranked by tier 1 capital

Figures in U.S. dollars, and as at end-2005www.economist.com/markets/indicators/displaystory.cfm?story_id=7141354 The Economist, The world's biggest banks, List of the world's ten largest banks by tier 1 capital at the end of 2005

Citigroup — 60 billion
Royal Bank of Scotland — 38 billion

Top ten banking groups in the world ranked by assets

Figures in U.S. dollars, and as at end-2004www.economist.com/surveys/displaystory.cfm?story_id=6908408 The Economist, Thinking big, List of the world's ten largest banks by assets in 2004

UBS — 1,144 billion
Royal Bank of Scotland — 1,110 billion

Top ten bank holding companies in the world ranked by profit

Figures in U.S. dollars, and as 2003

Citigroup — 10 billion
Royal Bank of Scotland — 4 billion

Top ten banks in the world ranked by market capitalisation

Figures in U.S. dollars, and as at 26 July 2006www.economist.com/displayStory.cfm?story_id=7226067 The Economist, On Citi's tail, List of the world's biggest banks, by market capitalisation, as at 26 June 2006

Citigroup — 110 billion
Royal Bank of Scotland — 95 billion

History of banking

Main article: History of banking

Florentine banking — The Medicis and Pittis among others
Banknotes — The evolution of modern central banking policies
Bank of America — The invention of centralized check and payment processing technology
Swiss bank
United States Banking
History of Money and Banking in the United States by Murray N. History of banking in the Middle-East

Additional topics

Company HistoryFinance: Banks & Credit

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