Austrian Finance Minister Michael Spindelegger put an end to weeks of uncertainty and ruled out insolvency for nationalized Hypo Alpe-Adria-Bank International AG, sparing senior bondholders.
The debt-ridden bank will be split into a wind-down vehicle without a banking license and its operating banking units in ex-Yugoslavia, which will be sold as quickly as possible, Spindelegger said at a news conference in Vienna today. Austria will seek a contribution to the wind-down costs from Hypo Alpe’s former owner, the province of Carinthia and from holders of subordinated securities and participation capital, he said.
“There were many serious arguments for an insolvency,” Spindelegger said. “But at the end of the day the risks were not predictable.”
Spindelegger, struggling to contain public anger about tax money going into the company, had kept options including an insolvency in play until today. A resulting default could have forced losses on senior bondholders guaranteed by the Carinthia province and on Germany’s Bayerische Landesbank, another former owner with whom Spindelegger is now seeking settlement talks.
The plan for Hypo Alpe means that Austria’s state debt will rise by about 6 percent of gross domestic product, according to a task force of experts led by central bank Governor Ewald Nowotny that drafted the “bad bank” model for Hypo Alpe.
While Austria won’t touch senior bondholders, it is seeking to impose losses on holders of hybrid capital like subordinated bonds or participation capital, Spindelegger said. A federal guarantee for a 1 billion-euro subordinated bond will be honored, Nowotny said.