The Irish Pub tucked away behind Vienna’s impressive casino is packed on Friday nights, but soon it may also be standing room only in Austria’s bankruptcy courts. Local insolvency practitioners are expecting a surge in both business and personal bankruptcies after a relatively calm 2008, when just 6,350 companies were declared insolvent.
The Euro meeting of the Begbies Global Network of business rescue firms was treated to a depressing assessment of the situation in this commercial gateway to Central and Eastern Europe, where the perilous state of a number of economies, notably Hungary, Latvia, Serbia and the Ukraine threatens to cause heavy write-downs for Austrian banks, which have a combined total of €250bn invested in other CEE states. The default rate on this debt is expected to be at least 10% - and probably rather higher.
Austria’s strong connection to the struggling CEE region is not just because of inward investment into these states, but also because it sends over 25% of its exports there. Inevitably, trade with the CEE has slowed even more rapidly than other major markets, pushing Austria’s GDP down into negative territory since the last quarter of 2008 - although not as far as its more powerful but more badly-affected neighbour, Germany.
Fortunately, the Austrian equivalent of the US Federal Reserve has assets of €84bn and should be able to provide adequate support to banks. Indeed, some €10bn has been injected into the economy recently, and there are the first tentative signs of a thawing in credit markets, according to Thomas Schaffer of TPA Horwath, one of Austria’s leading accounting firms.
There have been no major insolvencies yet, but mounting problems at a number of large companies have prompted a group of leading insolvency practitioners to band together to create an informal panel to work together, should such an eventuality arise. Dr Ulla Reisch, from law firm Urbanek Lind Schmied Reisch, confirmed that Austria’s insolvency profession lacks any individual firms with the capacity to handle large cases.
As in so many other countries, insolvency experts will be working hard but running into the common problem of finding buyers for distressed assets - or at least anyone with the cash to pay for them. Austrian banks are still lending and investors are certainly alert to potential bargains, but extreme caution remains the watchword.
So the revellers wreathed in the cigarette smoke of Molly Malone’s may soon be crying into their beer as job losses accelerate and the recession gathers pace. There is no end in sight here in Austria quite yet.
We wanted to know how the rest of Europe was being affected by the financial turmoil. So we asked Nick Hood, a partner and insolvency practitioner at accountancy Begbies Traynor, to provide MT with some snapshots from his frequent travels on the Continent. This is the second offering from our roving contributor (click here to read Nick’s thoughts on Poland, the only European economy not in recession – yet).
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Nick Hood: Austria gears up for insolvency rush