Austria Nationalizes First Troubled Bank

Kommunalkredit Austria, which expanded into Central and Eastern Europe in recent years, was sold to the Austrian government by Austrian financial company Oesterreichische Volksbank AG and French-Belgian group Dexia, the banks said in statements.

"This step is being taken to stabilize Kommunalkredit on a sustainable basis and to ensure a sufficient level of liquidity and capitalization for the bank even in the event of a persistent financial crisis," a Kommunalkredit statement said.

Volksbank has held 50.78 percent of the Vienna-based bank's shares and Dexia, 49 percent.

As part of the plan to stave off the bank's collapse, its two owners agreed to subscribe to 373 million euros in Kommunalkredit preferred shares - Dexia for 200 million euros and Volksbank for 173 million euros.

Dexia said it expects to book a loss of 105 million euros on the deal. Volksbank made no immediate statement on the bottom-line impact.