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

2 Paradigmatic Audit risk managementMore than 400 Media reactions DiePresse „State as speculator 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

3 Paradigmatic Audit risk managementWhat 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)

4 Paradigmatic Audit risk managementShort term investments - ÖBFA 2002: 4,525 bill. EUR 2006: 15,163 bill. EUR (+ 335% auf 2002) 2007: 15,472 bill. EUR (+ 341% auf 2002)

5 Paradigmatic Audit risk managementShort-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 (4,922 bill. EUR) of 1,8% Non-performing SIV-ABCP: 616,9 mill. EUR; pending loss by december 2008: approx. 380 mill. EUR

6 Paradigmatic Audit risk managementWhat 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“

7 Paradigmatic Audit risk managementWhy 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

8 Paradigmatic Audit risk managementWhy 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

9 Paradigmatic Audit risk managementLuckily 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