Pulling Rabbits Out of the Hat Austrian CB Writes a Black Zero for 2008

Wednesday, May 27, 2009

Austria's Central bank (Osterreichische Nationalbank OeNB) has barely managed to close its profit & loss statement for the year 2008 with a black zero. According to its annual report (PDFpublished on Tuesday (I pity journalists who have to make sense of the 143 pages with all the footmarks within a few hours) net operating profit tumbled almost 90% to a negligible €47 million in 2008. Net profits for the year sank 82% to €3.15 million.
At the same the balance sheet exploded by 35% to €83,8 billion. Declining profits while shuffling a third more of fiat money in and out of those special revaluation accounts only a central banks has, give a clear hint that the OeNB's balance sheet has structurally dramatically worsened within one year.
Weren't if for the subsidiaries of the OeNB like the Austrian Mint and the sale of credit card processor Austria Card into American hands (we can be confident they will never abuse this mine of data as all US entities live a life holier than the pope) the central bank would have had to record a loss. 
Selling Gold to a Gold-Hungry Public
Its best cash cow these days appears to be the Austrian Mint who is truly experiencing golden times due to its booming sales of its bullion coins in both silver and gold. All this, while the monetary metal silver is slapped with a 20% value added tax in Austria that defies any logic other than to shy away investors from buying the poor man's gold as an investment.
Central bank governor Ewald Nowotny certainly cannot be held accountable for the looting of the central bank by former finance minister "I have no ideology" Karl-Heinz Grasser, who looted half the central banks' reserves or took more than €4 billion in order to reach a balanced budget in his reign. His paper games have been demasked since.
Grasser, once a close friend with the deceased far-right-wing populist Joerg Haider, has now been relegated to carry the handbag of Swarovski heiress Fiona Grasser, trying in vain to land a job with an institution like the OECD or the World Bank since he resigned from government. IMHO a politician without an ideology is only an opportunist, an opinion shared with the thinking third of Austria. 
Grasser got a fat paycheck from his work for Meinl Bank which currently sees itself flooded with lawsuits because they played a pump-and-dump scheme with 3 IPOs that paid the small private bank handsome annual dividends exceeding the half-billion Euro-mark or some 200 times what the OeNB made last year.
A few back-of-the-envelope calculations of the figures presented to find out about the true health of the OeNB make no sense either. 3 pages of footmarks (beginning pg. 97) clearly explain that the style of valuations leave ample room to pull some rabbits out of the hat in order to arrive at the OeNB's set of figures.
While the OeNB has little leeway in valuating liquid and marketable instruments, a derogation from mark-to-market principles for securities held to maturity and mark-to-fantasy rules for synthesized instruments (will any central bank ever separate gold and gold swaps in order to let the public know what's really left in the vaults?) raise suspicions that's where the rabbits are stored.
Austria stopped its gold sales entirely in 2008, realizing a book gain of €480 million on its official hoard of 280 tons of gold. Only in 2004 Austria had left 307.5 tons of gold and I can remember times when this figure was closer to 500 tons before the OeNB ventured like most central banks into dividend- or coupon-yielding investment instruments who now have to be valuated at mark-to-model prices in order not to set the whole house of cards aflame.
I will not lose one word on the central banks forecasts about Austria's economy as Nowotny managed to establish a 100% wrong track record less than one year into office, painting an unjustified rosy picture whenever releasing statements on the health of Austria's economy. 
This economy and the Republic of Austria has been brought down to its knees thanks to the guild of investment bankers who were happy to finance East European consumerism no matter the risk. 
Small footnote: Austrian households are not burgled anymore by citizens from East European EU members as was the case in the last decade. Why should they when it was much easier to get a loan for a flashy BMW at the domestic subsidiary of an Austrian bank?
Expect this country to knock the IMF's door in the medium term, losing its coveted long term AAA rating on the way. Austria was the 6th-richest country in the world at the beginning of this millennium. This ranking is probably gone for the remainder of my life. As always the ratings agencies will do too little, too late. But that's a problem stemming from their business model where the debt issuer pays the agency for his rating.
As a last note I want to add that all these blown-up figures have become so meaningless. I remember that the OeNB, then led by CEO Adolf Wala, boasted to be able to mobilize 50 billion shillings with in 24 hours when Austria came under attack from currency speculators in the early 1990s. 50 billion old money are a laughable €3.63 billion in the synthetic currency called Euro. Today's outlandish numbers are all inflation as described in the text books of the Austrian school of economists.
And as a finally and truly last note I recommend everybody to read books about the European monetary history. All adventures with artificially created currencies in the centuries before ended with wars that starved parts of the old continent every few decades.


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