Global Investing

Austrian subprime woes turn into political hot potato

The Austrian government debt agency’s two-year old foray into subprime investments has turned into a political hot potato and sparked an increasingly heated debate between the Social Democrats and conservatives, caught in an uneasy but coalition government without viable alternative.

Austria’s audit court last week revealed that the agency, which in its staid day job issues government bonds and makes sure state coffers are full when they need to be, started to moonlight on money markets in 2002 to earn a little extra money on the side.

Its cash position ballooned from an average 4.5 billion euros in 2002 to a peak of 26.8 billion euros in October 2007. This level “was not only determined by economic necessities, but was also meant to generate additional revenues,” the audit court said in its report.

Sure enough, as much as 10.8 billion euros went into asset-backed commercial paper (ABCP), a class of structured investments that became disreputable when the subprime crisis broke out in 2007. Luckily, the debt agency got away only slightly bruised, with up to 380 million euros in possible losses from those investments.

Even though the loss looks manageable (it equals 0.13 percent of Austria’s GDP), and no rules seem to have broken, two former and the current finance minister – all conservatives – as well as the agency itself find itself at the centre of a debate seeking someone to blame.

Global government-backed bonds surging

Government-backed lending programs around the world have sparked a revival in financial and corporate borrowing — for now. Worldwide sales of corporate bonds rose to $251 billion in January, the highest level since May 2008, marking the first signs of a thaw after a long global capital markets winter. The following are the global sales totals and a list of the biggest borrowers, according to Thomson Reuters data.

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Top Temporary Liquidity Guarantee Program
(TLGP) Issuers
Ranking Issuer Name Proceeds (USD) Market Share 1 BANK OF AMERICA CORP 32,628,557,500 23% 2 GENERAL ELECTRIC CAPITAL CORP 21,045,031,500 15% 3 CITI 17,726,150,000 12% 4 JPMORGAN CHASE & CO 16,176,202,500 11% 5 MORGAN STANLEY 14,324,084,000 10% 6 GOLDMAN SACHS 13,558,528,800 9% 7 WELLS FARGO & CO 5,996,490,000 4% 8 AMERICAN EXPRESS BANK FSB 5,247,235,000 4% 9 REGIONS BANK 3,497,682,500 2% 10 PNC FUNDING CORP 2,896,760,000 2% 11 SUNTRUST BANK 2,743,940,000 2% 12 HSBC USA INC 2,673,895,750 2% 13 JOHN DEERE CAPITAL CORP 1,995,380,000 1% 14 SOVEREIGN BANCORP INC 1,597,932,500 1% 15 KEYCORP 1,499,050,000 1% 16 NEW YORK COMMUNITY BANCORP INC 601,626,380 0% 17 ZIONS BANCORPORATION 254,892,000 0%


Corporate and Government Guaranteed Debt – Global Month Global Corporate Debt US Guaranteed Debt (TLGP) International Guarenteed Debt Total January 2007 317,575.6 317,575.6 February 2007 254,769.1 254,769.1 March 2007 315,515.9 315,515.9 April 2007 197,842.8 197,842.8 May 2007 336,817.1 336,817.1 June 2007 320,097.3 320,097.3 July 2007 123,559.2 123,559.2 August 2007 135,911.7 135,911.7 September 2007 221,778.5 221,778.5 October 2007 260,642.5 260,642.5 November 2007 156,442.8 156,442.8 December 2007 117,873.8 117,873.8 January 2008 203,028.2 203,028.2 February 2008 155,728.7 155,728.7 March 2008 147,390.8 147,390.8 April 2008 303,897.8 303,897.8 May 2008 357,243.5 357,243.5 June 2008 219,317.5 219,317.5 July 2008 133,174.8 133,174.8 August 2008 125,650.0 125,650.0 September 2008 106,030.8 106,030.8 October 2008 68,402.9 4,869.0 73,271.9 November 2008 116,849.8 20,079.9 9,955.9 146,885.6 December 2008 102,066.7 87,768.5 4,050.5 193,885.7 January 2009 251,013.0 46,493.8 19,665.9 317,172.7