Investors Fact Sheet

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					 Investors Fact Sheet




      Republic of Austria

    Including a Special Consideration of

    the Interbank Market Support Act,

    the Financial Markets Stability Act,

    the Deposit Guarantee Scheme and

the Exposure to Central and Eastern Europe



           20th of February 2009




 Austrian Federal Financing Agency (AFFA)
Foreword by Dr. Martha Oberndorfer (CFA), Managing Director of the Austrian
Federal Financing Agency .......................................................................................... 3
Fundamentals of the Republic of Austria .................................................................... 4
  Key Data ................................................................................................................. 4
  Ratings.................................................................................................................... 9
The Interbank Market Support Act, the Financial Markets Stability Act and the
Austrian Deposit Guarantee Scheme ....................................................................... 10
  The Interbank Market Support Act ........................................................................ 10
  The Financial Markets Stability Act ....................................................................... 11
  The Deposit Guarantee Scheme........................................................................... 11
The Role of the Banking Sector within Austria and in an International Context ........ 12
  Exposure to Eastern Europe Regions and Countries............................................ 13
  The Recent Widening of the Government Spread ................................................ 16
Funding Strategy of the Republic of Austria in 2009................................................. 18
  Funding Strategy Cornerstones ............................................................................ 18
About the Debt Management of the Republic of Austria........................................... 20
   Contact Details...................................................................................................... 20




                                                                                                                             2
Foreword by Dr. Martha Oberndorfer (CFA), Managing
Director of the Austrian Federal Financing Agency

Over the past months, we have held numerous meetings with investors from many different
countries and regions. The current turmoil on the financial markets has been an ongoing
topic when discussing the general economic developments. This publication is a summary of
answers asked by our investors during the past roadshows and meetings.

Referring to the government bond market, it can be observed that some investors react to
the world-wide economic crisis with a flight to liquidity and a concentration towards large
issuers. It is worth mentioning that this situation has created opportunities for fundamentally
oriented investors seeking quality at attractive yields.

The Republic of Austria is rated AAA by Standard & Poor’s, Moody’s and Fitch. Recently,
Standard & Poor’s have reiterated Austria’s AAA rating and stretched the Republic’s
robustness:

„The ratings continue to reflect Standard & Poor’s opinion on the country’s wealthy, modern
and competitive economy, flexible labor, goods markets and moderate wage policies that
support growth, competitiveness and employment. We believe these factors, as well as the
absence of significant asset or credit bubbles should help Austria to weather the current
economic crisis comparatively well.”1

For an excellent insight into the rating methodology applied to government debt we highly
recommend reading “How Far Can Aaa Governments Stretch Their Balance Sheets – Stress
Testing Governments’ Debt Affordability Through the Crisis” by Moody’s Investors Service.2
Stress tests show that Austria is among the most resistant countries to weather any
contingent economic storm.

In addition to the rating agencies’ comments we would like to use the opportunity and
approach our investors pro-actively with this summary of relevant information on the
Republic of Austria, its economy and the measures to secure the functioning of the domestic
financial markets.

We dedicate a chapter of this paper to our funding strategy which reflects today’s investor
needs and challenging environments. Another chapter of this investors fact sheet
demonstrates the Austrian role in the CEE and SEE banking sectors and provides a
comparison with other countries’ role in these regions.

We are confident that this publication can satisfy the increased demand for data and we
invite you to contact us for any further information you may require.

Yours faithfully,




Vienna, February 20 2009



1
    Standard & Poor’s, January 13th 2009
2
    Moody’s Investors Service, February 2009

                                                                                             3
Fundamentals of the Republic of Austria
Key Data

Continuing the almost three decades of positive growth the Gross Domestic
Product reached EUR 284 bln in 2008 (+1.8%)3

GDP growth for 2009 is projected at -0.1%, reflecting the ongoing contractions in the
global economies.4

The Austrian GDP is composed of 2% agriculture, 31% industry and 67% services.
The large share of the service sector is one of the main reasons for the past and
present stability of the Austrian GDP.5

GDP per capita reached EUR 31,400 in 2008 which is 22% above the EU-27
average.6

The income distribution measured by the Gini-Index is exceptionally well balanced
and an important source of the country’s social and economic stability.7 The index
was at 26 in 2005 and put Austria on the 3rd rank within Europe right behind Denmark
and Sweden. The EU-15 average was at 30 and the best and worst values across
Europe’s countries were 23 and 41.




3
  Source: GDP at market prices, growth based on real GDP, Source: WIFO/IHS forecast from December 2008
4
  Source: IHS forecast from December 2008
5
  Source: Statistik Austria Forecast
6
  Source: GDP per capita at market prices, comparison to EU-27 average based on purchase power parity,
Source: EuroStat forecast
7
  Source: EuroFund

                                                                                                         4
Austria is among the few countries which run a current account surplus. The
current account surplus reached 2.8% of the GDP in 2008.8

                                                 Current Account Balance                                                         2006
                                                      (in % of GDP)                                                              2007
                                                                                                                                 2008e
     15




     10




      5




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8
    Source: IMF forecast

                                                                                                                                         5
The latest inflation on Austria data show a well-contained rate of 1.5% which is in
line with other Euro core countries (Germany: 1.1%, Netherlands 1.7%, Eurozone
2.1%).9


                                          Inflation across Europe
                                        (12m change in HCPI, in %)                           2008m12
      25




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The unemployment rate is low compared to other EU countries. It reached 3.8% in
Q3 2008 and is expected to rise above 4% during the year 2009 due to the
continuing contractions of the global economies.10




9
    Source: EuroStat, Statistik Austria, HCPI YoY change, CPI change for Austria during the same period is 1.3%
10
     Source: IMF

                                                                                                              6
The fiscal deficit for 2008 is 0.3% of GDP and thus considerably below the
Maastricht Limit of 3%.11

                                                                                                                    2006
                                                         Fiscal Deficit                                             2007
                                                         (in % of GDP)                                              2008e
     6.0


     5.0


     4.0


     3.0


     2.0


     1.0


     0.0


     -1.0


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Over the past 15 years, the real estate market in Austria has been characterised by
the absence of any bubbles or exaggerations. As presented in the following graph,
the decline in real estate prices in the US and UK as well as the credit crunch related
challenges in financing new transactions did not influence real estate prices
significantly.




11
     Source: Ministry of Finance, January 28 2009, preliminary figures

                                                                                                                            7
On the contrary, the Viennese real estate prices exhibited a healthy growth of 6.8%
during the period of Q1 to Q3 2008.12



                                                Changes in Real Estate Prices
                                                (annual change of price index)
                                                                                                             V ienna
                                                                                                             A ustria
     15.0%
     14.0%
     13.0%
     12.0%
     11.0%
     10.0%
      9.0%
      8.0%
      7.0%
      6.0%
      5.0%
      4.0%
      3.0%
      2.0%
      1.0%
      0.0%
     -1.0%




                                                                                                             08
             93


                   94


                         95


                               96


                                      97


                                            98


                                                   99


                                                         00


                                                               01


                                                                     02


                                                                           03


                                                                                 04


                                                                                       05


                                                                                             06


                                                                                                   07
     -2.0%




                                                                                                            20
          19


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                                                                                                  20
     -3.0%




                                                                                                        3
                                                                                                        Q
     -4.0%
     -5.0%
     -6.0%
     -7.0%




12
     Source: Austrian National Bank

                                                                                                                  8
Austria’s exports are well diversified. Raw materials, fuel and energy which are
subject to high price volatility account for only 3.2 and 3.3% of the exports.13


                                                Composition of Exports
               Food                Alcohol and Tabac      Raw Materials             Fuel and Energy        Oil and Grease
               Chemical Products   Manufactured Goods     Machines and Vehicles     Other Goods            Goods



                                                                                  1.5%
                                                                0.5% 4.8%
                                                  11.3%                              3.2%
                                                                                            3.3%
                                                                                             0.1%


                                                                                                   10.9%




                                    39.7%


                                                                                            24.7%




Ratings
„The ratings continue to reflect Standard & Poor’s opinion on the country’s wealthy, modern and
competitive economy, flexible labor, goods markets and moderate wage policies that support growth,
competitiveness and employment. We believe these factors, as well as the absence of significant
asset or credit bubbles should help Austria to weather the current economic crisis comparatively well.”
(Standard & Poor’s, January 13, 2009)

The ratings for the Republic of Austria are excellent across all agencies. Austria has
been enjoying triple A ratings for several decades and exhibits a stable outlook:

Standard & Poor’s (January 13, 2009)
Government Bonds: AAA
Commercial Paper and Other Short Term Debt: A-1+
Outlook: stable

Moody’s (November 5, 2008)
Government Bonds: Aaa
Commercial Paper and Other Short Term Debt: P-1
Outlook: stable

Fitch (February 15, 2008)
Government Bonds: AAA
Commercial Paper and Other Short Term Debt: F1+
Outlook: stable

13
     Source: Statistik Austria, January 2008 – November 2008

                                                                                                                            9
The Interbank Market Support Act, the Financial Markets
Stability Act and the Austrian Deposit Guarantee Scheme
In October 2008, two new laws aiming at the prevention of adverse developments
within the Austrian financial system were introduced: the Interbank Market Support
Act and the Financial Markets Stability Act. Both acts together with the
Depository Guarantee Scheme result in a package of EUR 100 bln14.

Despite the package being smaller than other countries’ packages (e.g. Germany
500 bln, France 360 bln, Netherlands 200 bln) it is considered sufficient and there are
no plans to top up.




                                                           EUR 100 bln
                                                          Total Package



                EUR 75 bn                                   EUR 15 bln                              EUR 10 bln
     Government Guaranteed Bank Issues      Capital Injections for Financial Institutions   Deposit Guarantee Scheme




The Interbank Market Support Act

The Interbank Market Support Act enables the Ministry of Finance to offer
guarantees for banks bond issues with a maximum tenor of five years and to
assume liability for the lending and borrowing operations of the newly established
clearing bank (“Oesterreichische Clearingbank AG” or short “OeCAG”).

The OeCAG is owned by Austrian banks and has an equity capital of EUR 180 mln15:

Raiffeisen Zentralbank (26.24%), Erste Group (18.47%), Unicredit Bank Austria
(17.88%), Hypo-Banken-Holding (12.29%), Österreichische Volksbanken (11.43%),
BAWAG P.S.K (5.17%), 3-Banken-Beteiligung (4.54%), other banks (3.98%).



14
     http://english.bmf.gv.at/Ministry/CommuniquontheAustr_377/_start.htm
15
     www.clearingbank.at

                                                                                                          10
The overall budget for the guarantees by the Republic under the Interbank Market
Support Act amounts to EUR 75 bln. The Republic of Austria is entitled to charge
adequate fees for providing the above mentioned gurarantees. The act expires by the
end of 2009.


The Financial Markets Stability Act

The Financial Markets Stability Act authorises the Ministry of Finance to take
recapitalisation measures on credit institutions and insurance companies
supervised by the Financial Market Authority (FMA).

Recapitalisation instruments include state guarantees for debt, granting of loans,
provision of equity capital, acquisition of new shares or new convertible bonds,
purchase of existing shares and acquisition of assets through merging.

The overall amount for capital injections has been set at EUR 15 bln. Some large
Austrian banking groups (e.g. Erste Bank, Raiffeisen Zentralbank) are currently
discussing this option for market competition reasons. They are expected to decide
within the next weeks.


The Deposit Guarantee Scheme

Participation in the Deposit Guarantee Scheme (DGS) is mandatory for all credit
institutions with a licence granted by the FMA and taking guaranteed deposits.
Natural persons’ bank deposits are unlimitedly guaranteed until the end of 2009.
Afterwards, the guarantee is limited to EUR 100,000. Bank deposits of small
companies are guaranteed up to EUR 50,000 (with a 10% threshold). Deposits of
other legal persons will be granted up to EUR 20,000 (also with a 10% threshold).

The DGS has been established by the banking industry and must ensure that the
deposits are paid up to a maximum amount of EUR 50,000. In case of failure to do
so, the DGS has to issue bonds which the Republic of Austria can guarantee. The
coverage of deposits exceeding the amount of EUR 50,000 will be guaranteed
directly by the Republic of Austria.

The amount allocated for providing the above mentioned guarantees has been set at
EUR 10 bln.




                                                                                11
The Role of the Banking Sector within Austria and in an
International Context
The Austrian banking sector plays an important role within the nation’s economy but
due to the well-diversified sources of contribution to the GDP it’s not an overly
dominant factor (5.5% of GDP).16


                                                    Contribution to GDP
            Agriculture & Forestry      Mining and quarrying        Manufacturing                     Energy and water supply
            Construction                Commerce                    Hotels and restaurants            Transport and communication
            Financial intermediation    Business related services   Public services                   Other services




                                                                                                     Financial intermediation
                                                                      4.5%                                     5.5%
                                                      12.3%
                                                                               6.1%


                                          7.9%


                                       2.6%



                                                                                             18.3%



                                       20.2%



                                                                                   5.6%
                                                 0.5%
                                                   1.9%             14.7%




16
     Source: WKO, 2008, GDP at current prices

                                                                                                                                    12
In an European context, the Austrian banking sector is comparatively small. The
analysis below shows the accumulated assets of the countries’ three largest banks in
relation to GDP. Austria’s figures are at 160% of GDP and well below the analyzed
countries average of 310%17:


                                                Accumulated Assets of Three Largest Banks
                                                             (in % of GDP)

     1000%


     900%


     800%


     700%


     600%


     500%


     400%


     300%


     200%


     100%


       0%
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According to this analysis, Austria ranks 16th between among the 21 European
countries analyzed



Exposure to Eastern Europe Regions and Countries
The latest figures available show an accumulated exposure of Austrian Banks to
Central, East and South East Europe (CEE and SEE) of EUR 201 bln18. Of this
amount, 72% result from business in EU countries. Other SEE countries account for
14% and CIS countries also take a share of 14%.

In detail, the exposures in the three regions (EU members, SEE and CIS) are as
follows:




17
     Source: The Banker, July 2008; IMF
18
     Source: Austrian National Bank, Q3 2008

                                                                                                                         13
                                Exposure of Austrian Banks to EU Members in Eastern Europe

25.0%




20.0%




15.0%




10.0%




5.0%




0.0%
         Czech      Romania       Hungary    Slovakia     Poland         Slovenia   Bulgaria   Latvia     Lithuania     Estonia
        Republic



                               Exposure of Austrian Banks to South Eastern Europe Countries

9.0%


8.0%


7.0%


6.0%


5.0%


4.0%


3.0%


2.0%


1.0%


0.0%
          Croatia             Serbia        Bosnia and         Albania              Turkey       Montenegro      Macedonia, The
                                            Herzegovina                                                          Former Yugoslav
                                                                                                                   Republic Of




                                                                                                                                   14
                                                   Exposure of Austrian Banks to CIS countries

 9.0%



 8.0%



 7.0%



 6.0%



 5.0%



 4.0%



 3.0%



 2.0%



 1.0%



 0.0%
                      Russia                                  Ukraine                           Belarus                                     Moldova




The chart below shows a summary across all Eastern Europe Countries.


                               Exposure of Austrian Banks to Eastern Europe Countries

  25.0%

           21.2%

  20.0%


                   15.2%
  15.0%
                           12.8%
                                   11.2%

  10.0%                                    8.3% 7.8%

                                                       5.8%
                                                              5.0%
    5.0%                                                             3.5%
                                                                            2.6%
                                                                                   1.9% 1.5%
                                                                                               0.9% 0.9% 0.8%
                                                                                                                      0.2% 0.1% 0.1% 0.1% 0.0% 0.0%
    0.0%
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Updated default rates experienced by Austrian banks in CEE have not been
published yet but recently Erste Bank has given a historic figure of 2.0% to 2.5%
together with the expectation of an increase to 3% due to the current economic


                                                                                                                                                                       15
slowdown.19 Raiffeisen International has reported a preliminary result for 2008 (net
profit EUR 982 mln, up 17%) and will publish final 2008 results on March 2620.

Banking experts have recently expressed the opinion that the considerably increased
margins in CEE and SEE as well as in Austria can dampen a negative P&L impact
from losses on loans. Furthermore, the now again rich margins in Austria enable the
Austrian banks to partly shift their focus back to domestic markets.

For the five largest Austrian banks, the exposures (total assets) according to the
annual reports for 2007 are as follows21:


                                               Total Asset in EUR and in % of GDP

     225                                                                                          80%


     200                                                               Total Assets in bln EUR    70%
                                                                       in % of GDP
     175
                                                                                                  60%

     150
                                                                                                  50%

     125
                                                                                                  40%
     100

                                                                                                  30%
     75

                                                                                                  20%
     50


     25                                                                                           10%


      0                                                                                           0%
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The Recent Widening of the Government Spread

Concerns over Austria’s exposure to CEE and SEE has driven the spread away from
levels seen in the past. Austria has been treated as a proxy for Germany with a small
yield pick up for good reasons.

First, the Austrian economy has a similar structure and strong economic ties to
Germany. About one third of the exports result from trade with Germany22.



19
   Source: Wirtschaftsblatt, January 26, 2009
20
   Source: Bloomberg, February 19, 2009
21
   Source: Annual Report 2007
22
   Source: WKO, Presentation at the Vienna University of Economics, 20th of January 2009

                                                                                                        16
Second, for the past years the Austrian economy has been performing better than
the German economy, keeping spreads to Europe’s biggest economy constantly at
low levels.

A good part of the recent widening of the spread to Germany is due to the flight to
liquidity which benefits German and French government bonds. This concentration
towards the two largest European countries creates a phenomenon under which
fundamental data play a minor role. In line with other small countries with sound
fundamentals, the Austrian government bond spread over Germany suffers from this
phenomenon.

This view is supported by further analysis. The sensitivity of the Austrian spread to
changes in the credit risk premium for high yield investments is shown on the
following chart:23




The chart shows that Austria’s Government Bond Spread is both comparatively and
absolutely not very sensitive to changes in high yield spreads.




23
     European Weekly Analyst 09/03, January 22, 2009, Goldman Sachs

                                                                                  17
Funding Strategy of the Republic of Austria in 2009
The Republic of Austria’s funding plan for 2009 shows a range in issue size of EUR
24 bln – EUR 30 bln (2007:20 bln, 2008: 21 bln).

The auction calendar of 2009 is outlined as follows:

Date                        Value Date               Volume
January 8                   January 15               EUR 3 bln syndicated issue RAGB Oct 2014
January 13                  January 16               cancelled due to substitution by syndicated
                                                     5.5 y issue
February 10                 February 13              EUR 1.65 bln increase of RAGB July 2020
March 10                    March 13
April 7                     April 14                                           Volumes and
May 5                       May 8                                              tenors     are
June 9                      June 12                                            announced one
July 7                      July 10                                            week prior to
(August 4)                  (August 7)               Reserve Auction date      the    auction
September 1                 September 4                                        date
Oktober 6                   Oktober 9
November 3                  November 6
December 1                  December 4

In 2008, the November auction was cancelled due to a positive development of the
federal budget. At the same time, the December auction has been kept on schedule
as the year’s last auction. Newspapers speculated the cancellation of the November
auction was due to other reasons but failed to check with the Austrian Federal
Financing Agency for the facts.

The total financial debt is at EUR 165 bln24 and for the year 2009 the duration is
expected to be in the range of 5.5 years – 6 years. A re-opening of existing issues is
regularly done in order to enhance liquidity.


Funding Strategy Cornerstones

Diversity has always been a key element in the Republic of Austria’s funding
strategy. The mix of investors is well diversified across geographic regions and
investor categories. The investor base is a mix of around 30% domestic and around
70% international accounts. Central banks, supranational organizations and other
high-investment grade investors are the key investors.

Funding sources include a variety of instruments, including state-of-the-art
electronic auctions of government bonds, Treasury bills, and standardized formats
like EMTN-Programs and loan formats.
The     documents      are     available for   download      on    the    website
http://www.oebfa.co.at/d/8/index.htm.

24
     as of January 31 2009, Source: http://www.oebfa.co.at/d/9/index.htm

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Austria is a rare issuer. Only one or two deals are syndicated per year,
complementing the monthly auctions. Market share of issuance within the Eurozone
is typically in the range of 2 – 3 %. Austria issues in a year about the amount which
Germany issues in a month.

Liquidity of Austrian government paper is enhanced by increasing the size of
outstanding issues on a regular basis. Furthermore, performance of dealers on the
secondary market is monitored.

Austria capitalizes on its fundamental strength an on its sound public finances.
Preliminary, the budget deficit 2008 was 0.3%, well below the 3% Maastricht-
threshold. Due to the financial market stability measures, the debt to GDP ratio
increased from 59.5% in 2007 to 62.5% in 2008.

The debt portfolio of the republic of Austria consists of 95% fixed rate and 5%
floating rate debt, with a typical duration of between 5 and 6 and an average tenor of
8 to 9 years. In that way, the refinancing risks and the rollover ratio compared to GDP
are among the lowest within the Eurozone countries.




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About the Debt Management of the Republic of Austria
The debt and cash portfolio of the Republic of Austria is administered by the Austrian
Federal Financing Agency (AFFA), the debt management office of the Republic of
Austria. All issues bear the name of the Republic of Austria (AAA / Aaa / AAA,
outlook stable). AFFA acts solely on behalf and on account of the Republic of Austria
and does not issue in its own name.


Contact Details
Austrian Federal Financing Agency
Austria – 1015 Vienna, Seilerstaette 24
Phone: (+43-1) 512 25 11 – 0
Fax: (+43-1) 513 99 94
Reuters: AFFA01…06
Bloomberg: RAGB, AUST
Web Site: www.oebfa.co.at/e/index.htm

Capital Markets Contact:
Martha Oberndorfer, CFA (Managing Director, ext. 14)
Markus Stix (ext. 22)
Niklas Pax (ext. 37)




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