Austria's parliament recently passed a law that saw many important bond holders for the ill-fated Hypo Alpe Adria Bank lose significant amounts of money.

Now, certain assets within Austrian Volksbank AG are causing considerable losses, such as ÖVAG’s Romanian unit, plus a portfolio of corporate and real estate loans.  By moving these non-performing assets under the umbrella of the already-failed Hypo Alpe Adria Bank, the Austrian Volksbank could significantly improve its capital ratios.

Further, such a move could reduce the need for write-downs if ÖVAG fails the European Central Bank’s Comprehensive Assessment in October, according to un-named sources familiar with the matters.

According to a report last week in the Austrian daily Der Standard, Volksbanken-Verbund, the combination of ÖVAG and nearly 50 regional cooperative banks that own it, will likely fail the health check the ECB is conducting before it begins to supervise euro-area banks on Nov. 4.  

There is likely to be a capital shortfall of €600 million (US$788 million) to €800 million.