35 Seconds Of TV Air Time Explaining Why Austria's AAA Rating Is Doomed

Tyler Durden's picture

While we will get into the nuances of why the Austrian AAA rating is the next to go (just after Hungary is downgraded in a matter of weeks if not days, following the country's request for IMF help earlier today) an event which we described ten days ago when the news that Austria's shaky rating was about to be downgraded first broke via the FTD and has since resulted in a major spike in Austrian credit spreads and bond yields, first we wanted to show readers the one ad which explains why the seeds of Austria's credit perfection collapse were sown back in 2007. In the ad, the second biggest Austrian bank, Raiffeisen Bank, explains precisely what its "selection" criteria were to get a loan in Hungary at the peak of the credit bubble (and yes, the ad is real). The ad explains the follow up news, which is namely that Austrian bank supervisors were today told to limit their lending to Eastern Europe. Unfortunately, the horses are out of the barn, and the biggest banks in Austria are about to be at the mercy of the markets, especially once the rating agencies do the inevitable and cur the country by at least 2 notches.

The ad in question:

As to what the catalytic lit match is that will set the forest ablaze look no further than Hungary. As a reminder, 67% of Hungarian household debt is denominated in foreign currencies, mostly CHF. The average long term entry point is about 155 CHFHUF which now trades 60% higher at 248. bank assets are about 50% of GDP which is at $130bln. Household debt is 39% of GDP. Assuming 50% of fx loans we are talking about an amount of about $10 BN by which loans are under water, and Austrian bank equity is more than wiped out.

Which brings us to the actual story of the day, which ties in perfectly with the above, namely an FT story in which we learn that "Austrian central bank said in a statement that Erste Group, Raiffeisen Bank International and Bank Austria, owned by UniCredit of Italy, would be prevented from loaning significantly more in CEE countries than what they raise in local deposits. Subsidiaries that are “particularly exposed” must ensure the ratio of new loans to local refinancing is not more than 110 per cent." In other words, the sins of the fathers have now come back and are haunting the same banks that so willingly doled out cash to anyone with a heartbeat as recently as 4 years ago.

Needless to say, Austria's AAA rating is the only reason why its banking system (where as a reminder mega bank Erste recently "uncovered" billions in underwater CDS that had never been reported previously) has been spared the vigilante anger so far. All that is about to change.

From the FT:

Austrian bank supervisors have instructed the country’s banks to limit future lending in their east European subsidiaries, a further sign of the potential knock-on effects of the eurozone crisis for economies around the world.


The restrictions come as Austrian officials seek to defend the country’s AAA credit rating, amid concerns that the government might have to bail out its banks because of losses in central and eastern Europe, where they are the biggest lenders, and their exposure to Italy.


The moves by Austria, which appear to be unilateral, show how even the eurozone’s strongest economies are feeling the pressure of the sovereign debt crisis.

However, Hungary is first:

Neighbouring Hungary on Monday officially requested precautionary financial help from the International Monetary Fund and the European Union, confirming a U-turn after it shunned further IMF support 18 months ago.

And as reported above, the pain for the top three banks is only now starting:

The three banks’ CEE exposure exceeds Austrian GDP, raising concerns that the government would be unable to bail them out if their loan portfolios turned sour. The announcement came just as the spreads of Austrian bond yields over German Bunds rose to record highs and was also designed to calm market jitters, a central bank official said.

Unfortunately, it is, at this point, too little too late. Once the downgrade comes, most likely before the end of the year, the latest flare up of European contagion will become apparent as the Eastern European flank quickly goes under.

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erg's picture

Only XXX can help me now.

Great Depression Trader's picture

I junked you for being a newbie

welcome to ZH, bitch

erg's picture

Thanks man. Wow, I'm still a newbie.

Harlequin001's picture

New day, new disaster. Time for a coffee...

'The three banks’ CEE exposure exceeds Austrian GDP' - says it all. Now, where's Deutsche in all this...

dlmaniac's picture

Now how do we short the coming Australian bubble?

Btw that commercial is so friggin' gay.

Michael's picture

For Entertainment value it has much more value.

At least the epic Chinese housing bubble bust should cure America of its China Envy.

Harlequin001's picture

Buy gold, short the world...

BrocilyBeef's picture

good luck and watch your corn hole.

longonSpam's picture

I junked you for being old.. hurry up and die, you're using my air bitch

Great Depression Trader's picture

2 weeks? Bitch, pleaseeeeeee

you sir can also have a JUNK

longonSpam's picture

Whatever old man, how's the Early Bird treatin ya..

fuu's picture

Flame out faster please.

erg's picture

To me XXX denotes an adult beverage relative to Turd's blog. Just a bunch of friends having a great conversation and some drinks.

Not someone trying to score points.

Bendromeda Strain's picture

Just havin' some fun with ya, nothing more.

Ghordius's picture

Look it from the bright side: without the Credit-Anstalt's idiocy Ludwig von Mises would have taken that job with them in Vienna, would have stayed there and would have probably not written his works...

No Austrian School without Credit-Anstalt

TruthInSunshine's picture

I am compelled to agree with you given my bias towards real economic growth versus debt based, falsified, Ponzinomics growth.

Bill D. Cat's picture

I thought you were more of a Captain America kinda' guy .

Freddie's picture

Is this another Creditinstalt Rothschild Bank?  One off Madoff's Khazar conspirators had a Austrian bank.

Burnbright's picture


At least the ad was funny. "We don't care about your income, just the value of the property!" 


Coke and Hookers's picture

Translation: "We don't care if you can't service your debt. All we care about is owning your property and your wages in the future in exchange for our fractional reserve created money - bitch."


Isn't banking wonderful?

TruthInSunshine's picture



Good Times : Federal Reserve Joke

The above is Fractional Reserve Scam 101 for those getting their feet wet.

Advanced classes are held daily on ZH, where the magic trick of being able to conjure fiat from thin air, loan it out at interest, leveraged many times over, and still reap massive profits and assets even if 99.9% of the loans theoretically defaulted (cost basis of conjuring fiat to loan was $0 and you wind up with massive assets from securitized loans that went sour) is broken down.



Great Depression Trader's picture

Goddamn this shit just keeps getting better and crazier! Thank you Tyler(s) for reporting this fantastic news. Tonight I turned on CNN and FOX to see if their was any coverage of what the European or US debt committee problems and I was not surprised to see them doing a story on that congress woman gifford that got shot last year while Fox was discussing Michelle Bachmans new book. God bless the internet. God bless the Tylers of zerohedge. Without the interwebs we would be so lost!

That being said I dont think we will make it to the summer without a severe beatdown of equities. This is eerily similar to the smash of 2008 except its much bigger and more dangerous. I would be especially shocked if the market sold off violently after the fed announced a 500 billion QE3, dissapointing the markets. And the reality is in order to keep the Ponzi alive the ECB and the fed would have to collectively monetize and expand their balance sheets by 3 trillion over the next 18 months.

Missiondweller's picture

In the current political environment I'm sure QE3 will be more stealthy and may even be underway now. Don't expect an announcement.

hungrydweller's picture

Bring it on, Bitchez!  S&P 500 baby!

LongBallsShortBrains's picture

That's got quite a ring to it!

S&P 500


knukles's picture

And MSNBC was showing old Olberman re-runs where he was incomprehensibly yelling about something, turning bright red, spitting all over. 
Shoulda been on the Gong Show

Freddie's picture

Only morons watch TV.  Thanks for enabling and enpowering your overlords by watching and paying for their propaganda electrons.  Nice job.


Austria, Australia. Whatever. The bankers are coming for your gold. 

hungrydweller's picture

That can't have any gold that is not deposited in a bank, MoFo!


Ummmm, tell that to Lloyd and Jamie and the boys.  They will try and get it whether it is in a freakin international bank or not.  I'm junking you for junking me. peace

CatoTheElder's picture

As Obama would say: They were talking in Austrian; that's why it had subtitles.

paarsons's picture

Good Citizens of Metropolis!

All inflationists are a bunch of blind cocksuckers.

I lived through the 70's.  Trust me.

Paul Volker restored order quite quickly.

The depression will be deflationary.

Now straighten up and fly right, you motherfuckers.


hungrydweller's picture

There are no new Reagans or Volckers, FuckWeed!

Freddie's picture

Stop pimping your lame blog.  My guess is your work for Goldman and have a phony hate Lloyd web site.

robobbob's picture

with $15T in bond financing, any move in interest rates and the US will implode over night.

this time the banker globalists have Volkers escape door nailed shut. theres no getting out of this burning building except running straight into their trap.

Bansters-in-my- feces's picture

 @ parrsons...Me...love to..put Jackboot on your throat,then Bitch slap you.

Have a nice day....FuckTard.

Non Passaran's picture

Awesome ad!
PO PO PO PO ....

Don't forget though that the government locked CHF denominated loans to a fixed (lower) rate some two months ago. Still, that kind of helps the debtors but the banks are screwed. IIRC the move cost the banks some EUR300 MM.

mynhair's picture

Crack my ass up.


Warning:  the following song was sponsored by Robert Wagner:



mynhair's picture

(Fricken Aftonbladet pulled the vid of that machine climbing the tower.  Beestards.)

Number 156's picture

To the people of Austria:

Willkommen in der Hölle.

slewie the pi-rat's picture

great ad!

flip that kid!

disabledvet's picture

who the phuck are you people here now? anywho...talk about operation "Fast and Furious"! The events in Europe are spiraling out of control so quickly it only goes to show how bad the gambling addicts at CNBC simply have to pass off their "handle" to you OR ELSE! Simply put England and France are now well beyond mere pounding the table for war with Iran as they are fast approaching simply starting one and "hoping the Americans can save them from themselves." In the meantime...back at the "budget negotiation table...