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