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Austria Delays Hypo Alpe Bad Bank Decision Amid Deficit

Austria’s acting government put off the decision how to wind down 19 billion euros ($26 billion) of bad assets at nationalized Hypo Alpe-Adria-Bank International AG until it finishes talks to renew the governing coalition.

Acting Chancellor Werner Faymann and Vice Chancellor Michael Spindelegger, locked in negotiations to renew their coalition government after a narrow victory in elections Sept. 29, told the bank to go ahead with preparations, Klaus Liebscher, Hypo Alpe’s chairman, said in a statement today. Liebscher said the politicians told him a decision should wait for the new government to be in place since it may require legislation.

“The chancellor and vice chancellor support setting up a wind-down unit,” Liebscher said in a telephone interview today. “But several issues are still open with respect to the various models to put a new proposal in front of the new government.”

Hypo Alpe, nationalized in 2009 when owned by Germany’s Bayerische Landesbank, already has been one of the most costly bank failures for Austrian taxpayers of recent years. The European Union told the country in September to sell the lender’s good assets and start winding down the bad ones by 2015 in return for allowing as much as 8 billion euros in aid.

It is contributing to budget uncertainty that’s casting a shadow over talks to form a new government in Vienna since last month. Faymann and Spindelegger yesterday presented a 24.2 billion-euro budget hole for the five years to 2018, of which bank aid amounts to 5.8 billion euros. Austria lost its top AAA rating from Standard & Poor’s in January 2012, mostly because the ratings company saw its banks as a “contingent liability.”

Bad Bank

Austria taking Hypo Alpe’s debt on its own books would mean adding 6.2 percent of gross domestic product on top of debt equivalent to 75 percent now and bringing the debt level beyond 80 percent, which S&P said could cause another cut. The nation can only keep Hypo Alpe’s bad assets off its books should it win the support of other banks and investors to participate in acquiring the risky assets, Liebscher’s preferred solution.

The former central bank governor said he got Faymann’s and Spindelegger’s go-ahead to talk with the private sector about such possible solutions. The models, which Liebscher said are “complex,” also need to be cleared by the statistics office for meeting EU rules on member states’ debt accounting. It’s still possible those plans don’t succeed, he said.

Austria’s two biggest banks, UniCredit Bank Austria AG and Erste Group Bank AG (EBS), have said they will only participate in a solution that is “commercially viable,” for instance, by including a reduction in their tax bills.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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