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Austria Says Hypo Alpe Mustn’t Repay $3.3 Billion Loans

Hypo Alpe-Adria-Bank International AG, the lender nationalized by Austria, should be banned from repaying 2.6 billion euros ($3.3 billion) in loans from former owner Bayerische Landesbank, the government said in a lawsuit.

Germany’s BayernLB, which dropped support for Hypo Alpe in late 2009, triggering the Austrian bailout, lent the money at a time when it knew the bank wouldn’t be able to repay it, the Austrian Chancellery said in a lawsuit filed yesterday. The funds may qualify as “substituting equity,” which under Austrian insolvency law means they must not be repaid, the government said in the lawsuit, a copy of which was obtained by Bloomberg News. The lawsuit was filed against the European Commission at the European Union General Court in Luxembourg.

“Starting with the summer of 2012, the Republic of Austria has obtained evidence that suggests the loans are to be qualified as equity-substitute,” according to the lawsuit. The “repayment ban could still be in force,” the government said.

Matthias Priwitzer, a spokesman for BayernLB in Munich, declined to comment on the lawsuit. Leo Szemeliker, a spokesman for the Austrian Chancellery, confirmed the government had filed the lawsuit against the Commission. A spokesman for the Commission declined to comment. Austria’s Profil magazine reported the lawsuit earlier today.

Investigation Continuing

The nationalization of Hypo Alpe, once owned by southern Austria’s Carinthia province, caused 3.7 billion euros of losses at Munich-based BayernLB. Hypo Alpe, which expanded in the 2000s to become one of the biggest banks in the former Yugoslavia, has cost Austrian taxpayers at least 700 million euros since the nationalization and may need another 2.2 billion euros in state capital by the end of 2013. Austrian and German prosecutors have been investigating since 2009 how former managers and investors may have contributed to the losses.

BayernLB bought its initial 50 percent stake in Hypo Alpe for 1.63 billion euros in 2007 from Carinthia, insurer Grazer Wechselseitige and a group of investors led by Tilo Berlin, Hypo Alpe’s former chief executive officer. BayernLB is itself suing Hypo Alpe’s former owners and managers, saying it was duped into the purchase, an allegation they deny. Several cases brought by state prosecutors and Hypo Alpe, based in Klagenfurt, Austria, are still pending.

The government also denied in the lawsuit that it guaranteed BayernLB it would repay the 2.6 billion-euro loan in case Hypo Alpe doesn’t. Formally, its lawsuit is against the Commission for mentioning that guarantee in its July 25 decision to approve German state aid for BayernLB.

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