US embassy cable - 05VIENNA1026

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