Saturday, February 7, 2009

EU Pressured by Banks for East Europe Financial Aid

By Meera Louis and Zoe Schneeweiss

Feb. 6 (Bloomberg) -- A group of six banks, including Italy’s UniCredit SpA and Austria’s Raiffeisen International Bank Holding AG, have pressed the European Union to organize financial aid for countries on its eastern fringes like Romania and Ukraine.

The banks, which have operations in central and eastern Europe, requested a 12-point assistance program for the region ranging from U.S. dollar and euro-denominated loans for banks to guarantees for customer deposits from organizations such as the European Bank for Reconstruction and Development, according to a Dec. 1 letter sent to the European Commission. The program may also include help to bolster capital ratios at regional lenders.

The requests are a “positive move” for central and eastern Europe, said Neil Shearing, an emerging markets analyst at London- based Capital Economics Ltd. “If western banks continue to operate in the region, that provides a lifeline of capital. If they pull out en masse, the whole thing becomes a mess.”

Officials at the EBRD in London said in a statement that they’re in discussions with financial institutions and government officials to address banks’ concerns.

In addition to Milan-based UniCredit and Raiffeisen in Vienna, the banks that sent the letter to the commission, the EU’s executive arm, are Italy’s Intesa SanPaolo SpA, Austria’s Erste Group Bank AG, Societe Generale SA of France and KBC Groep NV in Belgium.

Predicted Recession

UniCredit owns banks in Poland, Bulgaria and the Czech Republic; Erste has lenders in the Czech Republic, Slovakia and Romania; Intesa holds a bank in Serbia; KBC has lenders in Hungary and the Czech Republic; and Raiffeisen ranks among the largest foreign lenders in Russia and Ukraine.

The International Monetary Fund said Jan. 28 that “several banking systems in western Europe remain highly exposed to a deterioration in asset quality in emerging Europe.” The region will have a recession this year as exports collapse, the IMF said.

Austrian banks alone have made 230 billion euros ($294 billion) of loans in the region, equal to about 80 percent of the country’s gross domestic product, according to data compiled by the Bank for International Settlements.

The Austrian government said Jan. 27 it will seek support for an EU initiative to rescue the region’s banking system. The plan would include funds from the European Investment Bank, the European Central Bank and the EU Cohesion Fund. That received support from Germany’s Chancellor Angela Merkel Jan. 28, who backed the use of “current instruments” like the IMF.

‘Shared Responsibility’

Asked about the Austrian initiative, Amelia Torres, the spokeswoman for EU Monetary Affairs Commissioner Joaquin Almunia, told reporters Jan. 29 that there is a “shared responsibility by the banks and the home countries in ensuring financial stability in the countries where those banks have acquired and now have subsidiaries.” She declined to comment this week on the letter from the six banks.

The companies say in the letter, a copy of which has been seen by Bloomberg News, that a strong banking system is needed to “limit the negative impact of the global downturn” on the region. The document, signed by chief executive officers, also was addressed to French Finance Minister Christine Lagarde, whose country held the EU presidency until December.

Erste spokesman Michael Mauritz, Raiffeisen International spokesman Peter Klopf, UniCredit spokesman Marcello Berni, Societe Generale spokeswoman Laura Schalk and a spokeswoman for Intesa declined to comment on the letter when called yesterday.

‘Signal of Solidarity’

KBC spokeswoman Viviane Huybrecht said the Belgium-based bank signed the letter “as a signal of solidarity with our peers” in central and eastern Europe. Both KBC and Societe Generale said they had subsequently joined an initiate organized by the Institute for International Finance. The International Herald Tribune reported Feb. 4 that the IIF will lobby governments on eastern Europe ahead of April’s Group of 20 summit in London.

Western banks have enjoyed years of success in the region and “it is crucial that they uphold their commitments to emerging Europe,” EBRD President Thomas Mirow wrote in an article published Jan. 25 in the Financial Times.

Governments in central and eastern Europe increased deposit guarantees after the EU decided in October to raise protections for the 27-member group to 50,000 euros from 20,000 euros.

New EU-member states, including Romania, Poland and Latvia, have also boosted bank deposit guarantees to 50,000 euros. Lithuania upped the limit to 100,000 euros, while Slovakia, Slovenia and Hungary offered unlimited protection. Ukraine, which isn’t an EU member, raised the guarantee on deposits to 150,000 hryvnias ($18,400) on Oct. 31.

To contact the reporters on this story: Meera Louis in Brussels at mlouis1@bloomberg.net; Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net

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