The Austrian Court of Audit revealed the Austrian

„Speculation Scandal 2009“ in a paradigmatic audit concerning risk management of short term

assets

S. 2

More than 400 Media reactions

- DiePresse „State as speculator - 600 mill. EUR of losses possible“

- APA: „ÖBFA held share of 1,8 % of the world marke of super-risky assets - up to 617 mill. EUR loss possible“

- even Bloomberg and Financial Times reacted

Paradigmatic Audit risk management

S. 3

What was the problem?

- ÖBFA (Austrian Federal Financing Agency) had excess-liquidity and used it for short-term investments in the money market to „make margin“

- part of these short-term investments were in ABCP‘s of SIV‘s (Asset backed commercial papers of Structured Investment Vehicles)

- SIV‘s are complex investment vehicles that were hit first by the outbreak of the US-subprime-crisis in July 2007

- ÖBFA bought a share of 1,8% of the world market(!!) in these vehicles with a very unlucky timing (first SIV‘s already tumbling)

Paradigmatic Audit risk management

S. 4

Short term investments - ÖBFA

2002: 4,525 bill. EUR

2006: 15,163 bill. EUR (+ 335% auf 2002)2007: 15,472 bill. EUR (+ 341% auf 2002)

Paradigmatic Audit risk management

S. 5

Short-term investments - ÖBFA - non-performing assets

• 3,961 bill. EUR were invested in ABCP of SIV‘s (August 2007) • Share of the world market sep. 2007 (4,922 bill. EUR) of 1,8%

• Non-performing SIV-ABCP: 616,9 mill. EUR; pending loss by december 2008: approx. 380 mill. EUR

Paradigmatic Audit risk management

S. 6

What was the „story“ of ÖBFA during the audit?

- „there is no loss - we had only to exchange SIV-ABCP for zero coupon notes with the same nominal amount“

- „all of this ABCP was AAA“

- „these losses are a singular event and can only be explained with the worst financial crisis since the 1930s“

Paradigmatic Audit risk management

S. 7

Why were we able to proof the contrary?

- because of ongoing surveys in financial media (Bloomberg, Wall Street Journal) we knew at an early stage about the problems

in the US housing market:

• Since mid 2006 the US-Subprime-crisis was spreading in the US (housing-index was starting to drop)• SIV‘s were known as one of the possible first victims of a

possible subprime crash

- simple financial calculation showed clearly a loss (100 mill. today is much more than 100 mill. 10 years later)

- because of data from World Bank and IMF die Austrian Court of Audits knew the world market in SIV‘s

Paradigmatic Audit risk management

S. 8

Why could this happen to ÖBFA?

- ÖBFA had a tradition of an excellent debt management for years

- the asset management know how was less of a focus for ÖBFA

- SIV‘s were a very special product - only understood by some financial insiders in London or New York

- financial innovations were sold with aggressive marketing

Paradigmatic Audit risk management

S. 9

Luckily there was a steep learning curve of ÖBFA

- introduction of new limit systems for ÖBFA (maximum liquidity)

- purchases of SIV‘s were generally banned

- the minister of finance started an expert group to come up with resolutions for a better risk management

- new law (6/2010 in parliamentary discussions) details risk management for public debt and assets

Paradigmatic Audit risk management