The Austrian Court of Audit revealed the Austrian

The Austrian Court of Audit revealed the Austrian „Speculation Scandal 2009“ in a paradigmatic audit concerning risk management of short term assets

Paradigmatic Audit risk management 2 More than 400 Media reactions - Die. Presse „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 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 4 Short term investments - ÖBFA 2002: 2006: 2007: 4, 525 bill. EUR 15, 163 bill. EUR (+ 335% auf 2002) 15, 472 bill. EUR (+ 341% auf 2002)

Paradigmatic Audit risk management 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 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 1930 s“

Paradigmatic Audit risk management 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 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 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