Austrian Banking Austria's Banks Fight To Stay Relevant

Vienna used to house some of Europe's grandest banking halls. Now they are emptying out as the country's banks close branches and search desperately for ways to survive.
This former bank in Vienna is now a museum.

It's a sign of the times. Or possibly a comment on the state of the banking industry.

In the heart of Vienna, there is a spectacular building designed originally by architect Otto Wagner for use by the Postsparkasse bank. When it was completed in 1912, it was an ultramodern palace for the booming business of a powerful bank. Even today, a red carpet on the marble steps leads to the reception desk and onward into the building.

The Postsparkasse, now known as Bawag P.S.K., still has its headquarters in the eight-story building, but the company offices have retreated into one corner. The rest has been turned into a museum. It's the perfect metaphor for Austria's banking industry.

Behind one glass display cabinet is a savings-account book of the kaiserlich-königliche Postsparkasse, or Imperial-Royal Postal Savings Bank.

During the era of Emperor Franz Joseph I, customers brought their passbooks to the bank.

The structural shift in the banking sector is necessary and already underway. Ewald Nowotny, Director, National Bank of Austria

But these days there are no customer service representatives on hand in the empty hall. The last employee left in November. A “closed” sign rests on the bank counter. Alongside the standing desk designed by Mr. Wagner for people to use while filling out bank forms, there is now a light-gray, large-screened bank computer next to the sign “account service.”

The old bank turned museum graphically demonstrates an ongoing upheaval in Austria's banking sector. Computers have taken over the role of the former “bank officials” in the daily bread-and-butter business. Considering the high personnel costs in the Alpine republic, digitalization in the client business has become a matter of survival.

Since May 2007, Bawag P.S.K. has been owned by the American financial investor Cerberus. The bank, which was formed through the merger of the former Gewerkschaftsbank (Trade Union Bank) and the Postsparkasse, has been through tough restructuring under its chief executive, Byron Haynes. It sold off subsidiaries in Slovakia, the Czech Republic and Slovenia. Now the bank, with 480 branch offices and 2,600 employees, is preparing for the upcoming consolidation in the Austrian banking market.

Mr. Haynes intends to play an active role in that process. Recently the Cerberus subsidiary unsuccessfully attempted to acquire the private and commercial-client business of Bank Austria, the market leader in the Alpine republic. But its owner, Unicredit from Italy, decided not to sell. Now the plan is for Bank Austria, under the leadership of its chief executive, Willibald Cernko, to shrink and revitalize its debt-incurring client business.

The problems that Bank Austria is having in its home market are typical. Too many branch offices and too many bank advisers for far too few customers. The result: In the first three quarters of 2015, the Unicredit subsidiary was deeply in the red in the retail sector with its 1.6 million private and commercial clients. Now the bank hopes to turn the page with an austerity program. The restructuring will be brutal.

While its German sister bank, Hypo-Vereinsbank, has already cast off many branch offices, Bank Austria is faced with drastic and painful measures. Every third branch office is to be closed. By 2018, personnel and material costs are supposed to have been reduced by €300 million.

Bank Austria and its competitors such as Erste Bank and Raiffeisen are, just like German financial institutions, wrestling with minimal rates of interest in the euro zone, increasing state regulation and the challenges of digitalization. They are all pinning their hopes on expanding online services – and shutting down branch offices. For example, the First Group has already closed 30 percent of its branch offices in the last 10 years, and more closures will follow.

“The structural shift in the banking sector is necessary and already underway,” said Ewald Nowotny, director of the National Bank of Austria. As he sees it, one third of jobs in the Austrian banking system could be eliminated in the coming years. That would be 25,000 positions. Mr. Nowotny recommends undertaking “the necessary structural measures quickly.”

The changes are dramatic and far from complete. Only this much is clear: The network of bank branches will continue to shrink.

“All the large banks in Europe should carefully examine their business models. There is still much room for a further consolidation in the financial sector,” Mr. Haynes told Handelsblatt last summer.

For Mr. Haynes, the banking museum on his own premises serves as a daily reminder of how rapidly and radically changes can occur in the financial world.

Hans-Peter Siebenhaar is Handelsblatt's correspondent in Vienna and specializes in media and telecommunications coverage. To contact the author: [email protected]