Austria’s Spindelegger Keeps Options Open on Hypo Bonds

Austrian Finance Minister Michael Spindelegger stuck to his line of having “no taboos” about how to wind down Hypo Alpe-Adria-Bank International AG after a task force he installed advised against insolvency yesterday.

Spindelegger, struggling to contain public anger about the tax money going into the nationalized lender, told journalists in Vienna the task force led by central bank Governor Ewald Nowotny told him he shouldn’t let Hypo Alpe go insolvent, and that there was no other possibility to bail in bondholders. He “acknowledged” the group’s report and will ask his own advisers to review options again, Spindelegger said.

“I’m not saying that insolvency is the best scenario, I’m saying that I’m approaching this matter without taboos,” Spindelegger said. “The task force says it’s convinced that it’s impossible to let bondholders participate -- I have to take note of that.”

The costs for dismantling Hypo Alpe still enrage voters more than four years after the departure of shareholders including Germany’s Bayerische Landesbank prompted its nationalization. Nowotny’s task force recommended a 17.8 billion-euro ($24.7 billion) bad bank, which would drive Austria’s state debt beyond 80 percent of gross domestic product and may push its deficit toward 3 percent. The government is due to decide by the end of the month.

Bad Bank

Spindelegger said it was up to Hypo Alpe to redeem a 750 million-euro bond that’s due March 17 and that he wouldn’t interfere with the decision. The bank has 12.5 billion euros in bonds with a guarantee of the province of Carinthia outstanding, which Spindelegger previously said could be targeted in a solution that imposes losses on bondholders.

Austria will now start negotiations with BayernLB about setting up the bad bank, because the Bavarian state-owned lender has to approve the plan, Spindelegger said. The talks will start on a “technical level” and it would make sense to have talks between the Austrian and the Bavarian government at a later point, he said.

Hypo Alpe, Austria, BayernLB and Bavaria are embroiled in numerous legal battles over the Munich-based bank’s ill-fated purchase of Hypo Alpe.

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

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Zoe Schneeweiss, James Hertling

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