de Lion, Conor, Global Finance
It's a tale of power, politics, and suicide in a society still coming to terms with the loss of the old Austro-Hungarian empire. Blue-blood corporate leaders look on aghast as a new guard of nominal socialists march in to take positions that the well-bred once assumed to be inviolably theirs. Austria, perhaps Europe's most traditional society, is undergoing a social upheaval triggered by something as mundane as a banking merger.
The announcement last winter that Bank Austria would assume the government's stake in Creditanstalt-effectively a takeover-came as a shock to many. The two archrivals represent the opposing sides of Austrian business, respectively the socialist "Reds" and the conservative "Blacks." For the banks' corporate customers, the merger seems to augur an even less competitive banking climate than the restricted market already had. As each brought its own dowry of stakes in companies unrelated to their banking activities, the new banking force is larger than the five biggest competitors combined.
Since effects of the merger won't be felt completely for years, insiders don't expect much immediate change for the banks' corporate customers. "The truth is, Austrian companies were offered what appeared to be competitive conditions for 10 years," says Alexander van der Bellen, a Green Party member who presented a report on the merger to parliament. "Only now can we say that the conditions were not competitive." Van der Bellen likens the situation to OPEC. "Despite their political differences, the parties basically met at breakfast and agreed on interest rates before the morning began."
Indeed, political loyalties in Austria sometimes have exerted stronger pulls than good business sense. Many corporations happily accepted the status quo, which allowed them to align with banks of a similar political persuasion. "In Austria, managers are all too often political appointees," says one analyst, "even in the country's few international companies."
A joint integration committee will set the future course for Bank Austria/Creditanstalt over the coming months, although any changes may take five years to implement. The only certainty at the moment is that Creditanstalt's old-guard managers are being felled at an alarming rate. Guido Schmidt-Chiari, Creditanstalt's 65-yearold chairman, was quickly pensioned off, and all but one of the original board members followed the old gentleman out the door. His successor, Erich Hampel, former head of the state postal bank, was appointed by Gerhard Randa, chairman of Bank Austria's managing board and the country's new undisputed banking king.
It's difficult to see where Austrian companies will benefit from the merger since there will be only one bank to deal with instead of two. Even efficiencies that could ultimately trim bank fees seem unlikely. The intention to preserve the Creditanstalt brand-name means that branch closures, even where Bank Austria and Creditanstalt sit side by side, are likely to be few. In the merger agreement, the government prohibited the banks from laying off excess employees.
More important for Austria's international competitiveness is the question of shareholdings that the banks acquired in the country's corporations. Austria's bank control of industry is unequaled in Europe. Many industrial companies were established in the second half of the last century when Emperor Franz Joseph I founded Creditanstalt specifically to fund them. Although banks did not initially take stakes in the companies, many loans were converted into equity in the 1930s to save companies from bankruptcy.
"The extent of the control that the banks exercise over Austrian industry is difficult to assess," says van der Bellen. Not all of the banks' stakes are controlling and much stock in their portfolios is in holding companies. "Change is beginning," he adds, "but generally the house bank principle is as strong as ever."
The situation at Wienerberger, the country's largest building materials group, is typical. …