From World Savings Day to World Investment Day

From World Savings Day tbd to World Investment Day

From World S ­ avings Day to World ­Investment Day­ In this interview with Christoph Kalbhenn from the daily ­Börsen-­Zeitung, Bernd Spalt and Christoph Boschan discuss the ­time-­honoured culture of conventional saving in German-­speaking countries and the dilemmas that have arisen from this. Bernd Spalt and Christoph Boschan firmly believe that the challenges of ­climate change and ageing societies can be better met through a strong capital market. This a ­ rticle considers the types of m ­ easures that could ignite the ­national economy and the role of political ­decision-makers.

Bernd Spalt is CEO of Erste Group Bank AG and Chair of Division Bank and Insurance Austrian Federal Economic Chamber. Since 1991, he has built his entire career within Erste Group and held multiple board-level positions in CEE and at holding company level. He earned a master’s degree in Law from the University of Vienna.

© Erste Bank / Wolfgang Zac

Christoph Boschan is Chief Executive Officer of the Management Board of Wiener Börse AG which operates the stock exchanges in Vienna and Prague. Previously, the former securities trader worked for several trading venues in Germany and focused on the topic of stock exchanges in his doctoral thesis.

Interview: Christopher Kalbhenn

250 years wiener boerse

The Erste Group is more than 200 years old. Can you explain the kind of conditi­ ons the company was born into?

significance in general and for you in particular?

BERND SPALT The Erste Group grew out of

long history. It was started in Milan in 1924 by representatives from international savings banks.

Our organisation started to celebrate it for the first time in 1925. This is something that is very much at the core of our business model. It was about making people aware that they could safely and profitably put aside the little money they had available. World Savings Day experienced its heyday from the mid-1950s onwards. It has not been celebrated as extensively as it was then over recent decades. However, there has been a renaissance in economic and financial education in Austria, al­ though the subject of saving has not been supported or perceived in the same way that it was during the years of the economic miracle. Having said that, the idea of saving has under­gone a revival during the coronavirus pandemic. It was obviously not possible to spend much money at all due to the lockdowns. During this time of uncertainty people have tended to prioritise saving again. Now that we are coming out of the crisis when a lot of money was saved but no interest could be earned, both the public and private capital markets have been playing a critical role in helping people do something useful with their money.

the Erste österreichische Spar-Casse which was founded in 1819. Its founding mission was to provide the “average person in the street” with the opportunity to set aside savings and accumulate assets. Our initial public offering (IPO) in 1997 then laid the foundations for realising this mission in the Central and Eastern European region as well. The Erste Group would not have been able to grow as much as it has without the IPO.

What were the conditions like 250 years ago when the Vienna Stock ­Exchange was founded?

CHRISTOPH BOSCHAN The reasons ­behind

the founding of the Vienna Stock Exchange were similar to the founding of all other stock ­exchanges: the need for order and financing. The Exchange was founded after the Seven Years’ War, which had wreaked havoc both in a physical and financial sense. The Habsburg state coffers were empty, so the Vienna Stock Exchange was basically set up to trade state credit – or bonds, in other words.

When did stock trading begin in ­Vienna?

CHRISTOPH BOSCHAN The actual stock

exchange system developed due to the industrial revolution that took place from the middle of the 19th century. New industries with large capital requirements started to emerge. This meant that individuals, banks and even states were no longer able to offer finance, so it had to be provided on a broader footing. This is when the Exchange started to gain in stature and grew to a remarkable size.

Its size naturally reflected the economic area that it was operating in. We need to remember that the Habsburg Empire was very large. The start of equity trading on the Vienna Stock Exchange c ­ oincided with this period in the mid-19th ­century. The first share to be listed was the Austrian National Bank (Oesterreichische Nationalbank, OeNB) in 1818.

The two oldest stocks that have been continually listed for 150 years belong to the companies PORR AG and Wienerberger AG – two brands that are well respected in Austria and around the world.

World Savings Day is coming up ­towards the end of October. What is its

From World Savings Day to World Investment Day

BERND SPALT World Savings Day has a very

Bernd Spalt and Christoph Boschan agree that strengthening the capital market is a win-win situation for everyone.

How do things look like for c ­ apital market culture in Austria versus ­Germany? Has there been ­renewed ­interest in equities recently – ­especially among young people?

­ hristoph Boschan and I, along with many others, C are trying to make it clear to policymakers that a strong ­capital market is good because it encourages growth and new opportunities. We are in a ­situation where a lot of cash has been saved, while a great deal of growth needs to be financed.

Regulatory ­structures for venture fund capital laws need to be put in place so that private and institutional investors can invest in growth in Austria and in our region. The SICAV act will be the first step in the right direction.

BERND SPALT There are a few differences,

CHRISTOPH BOSCHAN There have ­definitely

but the similarities outweigh the differences, mainly in the way that the capital market is not very well understood. This is why I am pleased that at a recent conference our finance ­minister pledged to ­implement a SICAV act [similar to the one i­mplemented in Luxembourg]. In ­Austria, the whole topic had become shaped by ­ideological and p ­ olitical thinking for a long time.

People had s­ tarted to misunderstand the capital ­market and the stock market and r­ egarded them as s­ ynonymous with evil speculation.

Financial l­iteracy has become a real problem. I do not just mean financial literacy in schools but at all levels, including the policy-making side.

Our ­policy­makers need to understand exactly how it all works. We actually have a risk-averse and i­deologically driven capital market culture in Austria, which significantly constrains our ­national economy. We all need to work on this.

been some positive developments. We have a ­clear perception and a growing awareness of ­returns on the investor side. We are also ­celebrating the ATX’s 30-year anniversary this year. It is interesting to note that people who have ­invested in the ATX Total Return from the ­beginning have notched up returns of over 600 per cent. Good investment returns are clear proof of the benefits of capital investment. The capital market plays an absolutely crucial role no matter which major issue we are talking about, whether it be retirement planning, the COVID-19 recovery, financial inclusion or wealth distribution.

This has slowly – and now visibly – worked its way into the political opinion-forming process. In Germany, we have recently seen this across the board in almost all the election programmes. In Austria, the government programme includes four pillars: first, the avoidance of regulatory gold ­plating or

any over-regulation beyond the European level; second, a financial education initiative; third, a strengthening of the second and third pillars of old-age provision; and the fourth and perhaps most important pillar, the introduction of a holding period, or tax exemption period, if you hold shares for a certain amount of time. Unfortunately, this has not been implemented yet, although there have recently been positive signs that implementation is imminent. I think this is exactly the right way to go because as I have already emphasised, the capital market plays a critical role in all major societal themes. After all, the state can only really take two alternative courses of action. It can either borrow more or raise taxes. Private capital should be activated to ease the burden on public finance.

BERND SPALT I would like to make a suggestion that would complement this. We have had many discussions and have also explained to politicians in detail what the problem is. We now need to do it together. I think that in terms of active design, ­progress has been disappointing so far. It would be a win-win situation for everyone which would unleash certain forces. We have not even talked about climate transformation yet, which will bring about major changes not only in the economy but in society in general. And this needs to be ­financed. We are now in the midst of tax reform, but we are not seeing a debate on how major investments are going to be financed. This simply cannot be done without the capital market.

250 years wiener boerse

CHRISTOPH BOSCHAN Societal ­challenges,

even those relating to the security of ­pension funds and COVID-19 recovery, appear to be ­dwarfed by the key issue of innovation ­funding.

We are an ageing society. Austria is in the ­comfortable position of being 10 to 15 ­years ­behind Germany in terms of demographic ­development. Demographic meltdown will happen much sooner in Germany and we will therefore be able to see a blueprint for this. But we are ­seeking a kink in the demographic curve in Austria. There are only two possible paths to growth. You can either work more – though that is not going to happen. We are an ageing society. We will never again work more. Young people are demanding to work considerably fewer hours. There is only one other option and that is to do things ­differently.

If you do not want to work more, then we need to maintain our innovative strength. After all, ­financing innovation means equity financing.

Credit is only of limited help here. Maintaining our ability to innovate – as an economy poor in natural resources – is a key capital market issue.

“There are only two ­possible paths to growth. You can either work more or do things ­differently. That is called ­innovation.”

Christoph Boschan

How do you approach ESG issues?

BERND SPALT ESG is important on three levels

for a bank. The first is on a purely regulatory level. This means I need to be compliant; I have to ­create transparency; I have to ensure risk ­management takes climate risks into account, and I have to align my business management ­strategy with this. The second level relates to my own carbon footprint. I have to present my own plans on how to become climate neutral. The third and most important level concerns our core business. I have to ask myself how I should support the ­transformation toward our desired future – a green future which includes renewable energy.

This means equipping our core business for

t­ ransformation. However, this does not mean we should shut everything down that is not completely green. We need to consider how companies can get to where they need to be. Banks will play an extremely important role here because they can finance and support this change. This is the big issue we are dealing with, apart from all the green bonds, which are here to stay. The main question we need to ask ourselves is how are we going to get our economy and our core markets to move towards sustainability.

From World Savings Day to World Investment Day

Bernd Spalt

CHRISTOPH BOSCHAN We are obviously

­ ffected as a company too. We are striving to opea rate as a carbon neutral company. We are a member of the Sustainable Stock Exchange Initiative and have naturally set up a green bond segment.

We have also been calculating the VÖNIX sustainability index for 15 years. This is not a new topic for us at all. However, I would like to raise a somewhat contentious point, namely that the capital market is now being talked about by the very people who did not actually want a capital market in the past. I am very surprised that people are now talking about the capital market and I am naturally very pleased that it is being seen as a potential lever. But I would strongly advise developing the capital market first. This would then ensure that it can ­serve as a lever. I would like to really emphasise this fact and say that this also applies to ­Germany: The EU taxonomy is coming as sure as night ­follows day.

Economies with developed capital markets will be able to take greater advantage of this. They will ­transform faster to create a c ­ arbon-free future; they will transform more ­sustainably and ­transformation will involve higher growth rates. You will be left behind if during this transformation ­process you do not have a developed capital market. This process has already begun and is now being cast into a set of rules. I would like to reiterate that the time has come to act.

Can you explain why the Central and Eastern European region is import­ ant to you? How have you positioned yourself in this region?

BERND SPALT In a nutshell, our core strategy

focuses on becoming the leading provider of retail and commercial banking in the eastern part of the European Union. This has been our goal since our IPO in 1997. We actually realised back then that this region would become Europe’s future growth engine – and this has proven to be the case.

The CEE region will continue to achieve a higher growth trajectory over the next twenty years than the rest of Europe. Even though it is important to stress that these countries are very different, they are all seeing highly dynamic economic growth and an enormous amount of pent-up demand.

This is helping our business model a great deal.

If you reduce banking to its essence, it is a ­leveraged play on local economies. This works very well in countries that can follow this type of growth trajectory. Our founding mission to create wealth for the region is working extremely well in all of these countries. This is part of our long-term strategy.

The IPO market has been quite strong.

How have things developed in the Austrian market this year?

How has the Vienna Stock Exchange positioned itself in the region?

CHRISTOPH BOSCHAN Unfortunately, the

for us when you look at our core businesses. We provide indices, consolidate the data from over ten markets in the region in a central data feed and we run the technical side of­­other exchanges, including our subsidiary in Prague, of course, as well as the exchanges in ­Budapest, Ljubljana and Zagreb. We do not just run the trading systems in these five ­markets but a lot of other IT services too. So, being firmly rooted in the region is part of our DNA. We are also opening up the markets to

­ arket has not seen large-scale activities this m year. There was a whole series of new stock ­market e ­ ntries in the junior market. There were one or two capital increases and we have ­achieved a bond listing record this year with over 5,000 bonds. This has positioned the Exchange among the old market leaders in this area, namely Dublin, ­Luxembourg and Frankfurt. We even overtook Frankfurt in the MTF segment this spring.

CHRISTOPH BOSCHAN This region is crucial

the west ­where there is the greatest willingness to pay. Our big ­clients include J.P. Morgan, ­Citi­group, BNP, ­SocGen etc. We are therefore trying to serve as a kind of hub. Our issuers also have a ­disproportionate amount of exposure in this growth region, that has twice the growth rate that we see in the west. If you are an investor looking for exposure in this area, Austrian issuers are the best option.

Would you therefore advise inter­ national investors to think about ­investing in the Austrian stock ­market?

CHRISTOPH BOSCHAN When building a

­ uropean portfolio, I would urge them not to E ­overlook this attractive market with its comparatively high dividend yield of 3.5 to 4 per cent. If you are ­currently looking for value with a diversified business model and an exceptional track record of delivering income in the form of dividends, you are in good hands in Austria.

BERND SPALT It needs to become more

­ idely known that investing on the Vienna Stock w ­Exchange means investing in a hub that is orientated towards the Eastern European growth engine.

It almost does not matter which stock you invest in, you are not just investing in the Austrian economy but also in the rapidly growing economies of ­Central and Eastern Europe.

Christopher Kalbhenn heads up the Stock Exchange and Capital Market Department at the German daily newspaper BörsenZeitung where he has worked since 1995.