Watchdog probes Erste, CEO Treichl over disclosure

Erste said on Oct. 10 it faced a 2011 net loss of up to 800 million euros ($1.1 billion) after taking hits on foreign-currency loans in Hungary, on euro zone sovereign debt, and in its credit default swaps (CDS) portfolio.The unscheduled announcement sent Erste’s stock to a 2-½ year low and also hit the share price of its peers.It came after Chief Executive Andreas Triechl’s said on Sept. 29 he saw no reason to change a 2011 profit forecast to account for a Hungarian law letting borrowers repay foreign-currency loans at below-market rates.An FMA spokesman said two separate investigations were under way but were at an early stage.“There is an investigation relating to the CDS portfolio and the way it was booked,” he said. “There is also an investigation relating to the interview that Mr Treichl gave to Reuters on Sept. 29 on the sidelines of the supervision conference where he confirmed the profit outlook and less than two weeks later the opposite was the case."The CDS case centres on Erste’s move last week to reclassify CDS holdings as derivatives instead of financial guarantees and to mark them in line with market valuations.That switch, which Erste said was based on a July staff paper from the International Accounting Standards Board, led to charges against both equity and profits.The FMA is now examining on its own initiative whether Erste should have switched earlier to using market rates for valuing the CDS portfolio instead of holding them at amortised cost, the FMA spokesman said.The investigation into Treichl’s comments arose from routine checks as well as a complaint from someone the spokesman did not identify about potential market manipulation and violation of disclosure rules, the spokesman added.The FMA has sent a letter to Erste requesting more information about the CDS portfolio. It has not written to the bank yet about Treichl’s comments, he said."The facts are being gathered, then it will be considered what happens next,” he added.An Erste spokesman confirmed it had been contacted by the markets regulator.“The FMA has asked us to answer six questions on the topic of CDS and adhoc releases,” he said. These included details on the credit default swaps held by Erste such as the timing of transactions and their market and book value.($1 = 0.727 Euros)