-->We are looking to short Hypo Vereinsbank again. The bank has Germany’s worst loan portfolio of the three big private banks. Moreover, HVM is Europe’s largest property lender - a questionable claim to fame given a potential property bubble. Their tier one ratio of 5.7% speaks volumes. New loan volume is near zero.

On the positive side, they have sizable stakes in Allianz and Munich Re. Both stocks have appreciated massively during the last eight weeks. Two smaller bank stakes (Norris Bank, Vereins und West Bank) are also for sale. That should help restore capital. Lower interest rates are also helping because lower funding costs are not passed on to customers. However, HVM’s most important asset is 99% of Bank Austria AG.

HVM is looking to sell 25% of this stake via an IPO in early July. The expected cash injection of €1 billion in addition to selling off two smaller banks is badly needed to repair HVM’s eroded capital base. We expect that the pending IPO of Bank Austria will either be postponed or brought to market at relatively low valuations. Bank Austria’s accounts make Enron and Worldcom look like plump accounting frauds. This accounting scam is actually publicly disclosed. Almost 40% of profits (from 2000 to 2002) were realized by shifting assets into foundations controlled by Bank Austria while 95% of the benefits accrue to Bank Austria. Normally such a shift would require a consolidation especially since 95% of the benefits accrue to Bank Austria. Even better, the boards of these foundations are primarily made up of people related to Bank Austria.
The Bank Austria/KPMG explanation is that foundations do not have owners (only beneficiaries) and as such do not need to be consolidated. The Bank Austria assets were transferred, thereby creating hundreds of millions of paper profits to an entity controlled (but not owned, because these funky foundations do not actually have owners) by HVM, when common sense and any other non-Austrian interpretation of IAS, or for that matter US GAAP, would mandate a full consolidation. This flotation would never make it in the United States or the United Kingdom given the current sensitivity to accounting issues. JP Morgan and Goldman are global leaders. They must be desperate to do some underwriting business, even in Central Europe.

-->ihr könnt zu den Fondsmanagern stehen wie ihr wollt jedenfalls sind sie nicht dumm ;-)

VA Technology (VATC AV, €25) is one of Austria’s most compelling turnaround candidates. The share price of this engineering company has collapsed from €130 to about €15. At €25, one of Austria’s most accomplished turnaround managers has acquired 20% of the outstanding shares. We expect dramatic management changes and a major restructuring in the fall which should lead to a sharp upward valuation for the shares. At 73% of book value and 9% of sales, the shares constitute excellent turnaround potential. Our internal estimates argue for a 30% free cash-flow yield in 2004 moving to 40% in 2005. These numbers are hard to believe, but annual cost savings of €100 to €150 million, which do not need to be passed on to customers, are feasible with 17,000 employees and €4 billion in sales.
<ul> ~ http://www.fmlimited.com/</ul>

-->Zum ersten mal seit Monaten spricht man von möglichen Shorts

Outlook

Shorting this market is close to committing financial suicide. On the other hand, we do not share investor enthusiasm based on company contacts. Bad news hardly affects company valuations. Accounting scams matter very little, at least in Europe, for the time being. Value-oriented or qualitative pair trades do not work. Inherently, the least appealing company outperforms the more attractive company for now. We are preparing long lists of shorts to be ready when investor sentiment is more receptive to subpar operating performance or other negative issues.