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The duties that VBAG is statutorily required to fulfil as the Association of Volksbanks' central organisation are to be transferred to Volksbank Wien-Baden. Splitting up VBAG is at the heart of the restructuring plan. VBAG’s website explains the restructuring plans thus: In October 2014, pre-empting expected failure of the ECB/EBA stress tests, VBAG announced that it would break itself up. But further support from the Austrian federal government was not forthcoming. In May 2014, Moody’s downgraded VBAG to one notch above junk, and also took the unusual step of warning that the whole Volksbanken network – which Moody’s does not rate – would need more capital. Since then, VBAG has reduced its asset base from 41.1bn Euros to 15.9bn EUR, an astonishing drop. It was part-nationalized by means of a debt-equity conversion of 250m EUR of the Austrian federal government’s subordinated debt holding: its Volksbanken member-owners contributed a further 234m EUR. In 2011 it lost 1.3bn EUR due to writedowns on Greek debt and further losses on its CEE assets and in its corporate finance subsidiary Investkredit AG. After considerable negotiations, most of VBAG’s CEE assets were sold to the Russian bank Sberbank in 2012 at a much reduced price, though VBAG’s loss-making Romanian arm was not included in the transaction.ĭespite this, however, VBAG continued to make losses. It also sold its 25% stake in Victoria Volksbank Versicherung to ERGO insurance. In 2010, VBAG sold its troubled real estate arm Europolis to the Austrian real estate companyĬA Immobilien Anlagen AG. It was bailed out by the Austrian federal government, which provided it with 1bn EUR of subordinated debt. It lost 1.1bn EUR in 2009 due to losses on CEE loans and real estate. Banks exposed to CEE suffered collapsing asset values and destruction of shareholder value. As investors spooked by the turmoil in the markets moved money to safe havens, several CEE countries slid into deep recession: the worst affected were Romania, Hungary and Latvia, all of which required EU/ Central and Eastern Europe (CEE) was badly affected by the 2008 financial crisis.