Austro-Hungarian Stock Exchange Alliance

UNCLAS VIENNA 001026

SIPDIS

STATE FOR EUR/AGS
TREASURY FOR OASIA/ICN/VATUKORALA
TREASURY ALSO FOR OCC/EILEEN SIEGEL
TREASURY ALSO PASS FEDERAL RESERVE AND SEC/E.JACOBS
FRANKFURT FOR TREASURY

E.O. 12958: N/A
TAGS: EFIN ECON AU XH
SUBJECT: Austro-Hungarian Stock Exchange Alliance


Summary
--------------

1. An Austrian consortium, led by the Vienna Stock
Exchange (VSE),has acquired a majority share in the
Budapest Stock Exchange (BSE). The VSE aims to form a
broader "Central European Stock Exchange" alliance,
including the VSE, BSE, and stock exchanges in Warsaw,
Prague, Bratislava, Ljubljana, Bucharest, Sofia and
Zagreb. The VSE's strategy complements the expansion of
Austrian banks, insurance companies and other financial
service providers into the new EU member states and other
countries in Central, Eastern and Southeastern Europe.
End Summary.


Towards a "Central European Stock Exchange"
--------------

2. On March 22, the EU Commission approved the
acquisition of a majority stake in the Budapest Stock
Exchange (BSE) by a consortium of Austrian and Hungarian
investors, led by the Vienna Stock Exchange (VSE). Since
May 2004, the VSE has held a 14% stake in the BSE. A
consortium of Austrian and Hungarian investors (Erste
Bank, Raiffeisenzentralbank, Austrian Kontrollbank, and
HVB Bank Hungary, a Bank Austria Creditanstalt
subsidiary) holds an additional 54.8% share. The VSE's
goal is to forge a strong alliance to benefit from the
growth potential of the capital markets in Hungary and
other Central and Eastern European (CEE) states.


3. Stefan Zapotocky, VSE Board Member, proclaimed
Brussels' approval "a milestone and clear commitment to
the goal of creating harmonized and efficient capital
markets in a Europe of regions." Attila Szalay-
Berzeviczy, the BSE Chairman, characterized the alliance
as "a boost for the entire Central European capital
market."


4. The acquisition of the BSE is part of the VSE's
eastward expansion strategy. The VSE and the BSE have
announced their intention to bid for the Warsaw Stock
Exchange, the largest stock exchange in the new Member
States, if the Polish Government privatizes it. In this
scenario, the VSE and the BSE would form an alliance with
the Warsaw Stock Exchange, which later could include
stock exchanges in Prague, Bratislava, and Ljubljana, and
eventually also Bucharest, Sofia and Zagreb - "a Central
European Stock Exchange."


Strong Austrian Financial Presence in CEE
--------------

5. The VSE's expansion into CEE mirrors the increasing
presence of the Austrian banking and financial sectors in
the region over the last 15 years. Following
restructuring, privatization, and market liberalization,
the majority of banks in CEE are now private and the
market share of foreign-controlled banks in CEE is about
70%. According to an Austrian National Bank estimate,
Austrian banks hold approximately 22% of total assets in
CEE banks (excluding Russia). All major Austrian banks
are active in CEE. 30% of Austrian insurance companies'
profits come from business in the region.

BROWN