Austria stepped up a legal battle with Bavaria yesterday, demanding Germany’s richest state pay a bigger share of losses at Hypo Alpe-Adria-Bank International AG, a bank the two governments jointly rescued three years ago.
Hypo Alpe, owned by Austria since the bailout, won’t repay loans from its former owner, Bavarian state lender Bayerische Landesbank, Chief Executive Officer Gottwald Kranebitter told journalists in Vienna late yesterday. It will also wants back loan payments it made previously, putting in doubt a total of 4 billion euros ($5.2 billion) in funding it got from BayernLB ahead of the rescue, he said. BayernLB sued Hypo Alpe in Munich and said it won’t refund its former subsidiary.
“We have to assume that most of the funding from BayernLB was substituting equity, and that has legal consequences,” Kranebitter said, citing an expert opinion Hypo Alpe commissioned on the issue. “The law has a very practical approach and that is to require the old owner makes a fair contribution and carries a fair share of the risks in a restructuring.”
Hypo Alpe, based in Klagenfurt, Austria, and BayernLB are among Europe’s most expensive bank failures, piling up as much as 14 billion euros in bailout costs for taxpayers in Austria and Bavaria. Executives and politicians behind the banks’ demise, now retired, dismissed or dead, left Hypo Alpe with soured loans in the former Yugoslavia and BayernLB with Icelandic debt and non-performing asset-backed bonds, on top of the losses caused by its former Austrian asset.
Hypo Alpe has 2.3 billion euros of BayernLB loans outstanding, mostly maturing in 2013 and 2014, and paid back another 2.3 billion euros since 2008, Kranebitter said. About 90 percent of the total is affected by the repayment freeze. The bank won’t make an interest payment due this month, he said.
Austria, which supported Hypo Alpe’s decision in a shareholder meeting today, may still sue BayernLB over the rescue deal in which it bought Hypo Alpe for one euro in the early hours of Dec. 14, 2009. BayernLB yesterday agreed to an Austrian request to extend until the end of 2013 the three-year statute of limitations to resolve legal conflicts.
BayernLB asked a Munich court to determine Hypo Alpe has to honor its debts, it said in an e-mailed statement yesterday. It won’t refund Hypo Alpe’s previous payments, CEO Gerd Haeusler was quoted as saying by the Austrian Press Agency today. BayernLB has lost a total of 3.7 billion euros with the Hypo Alpe investment.
BayernLB said it may take further legal steps in the matter. Bavarian Finance Minister Markus Soeder, after a hastily arranged meeting in October with Maria Fekter, his counterpart in Vienna, said BayernLB would call in the loans immediately should Hypo Alpe halt payment.
Austrian taxpayers have so far subsidized Hypo Alpe with 1.76 billion euros in capital, including an additional 500 million-euro cash tranche approved yesterday. Public guarantees to the tune of 16.7 billion euros, mostly given by its erstwhile owner, the Austrian province of Carinthia, still loom. BayernLB, meanwhile, has started to pay down the Bavarian state aid it received. Haeusler said the repayment will go on as planned despite Hypo Alpe’s repayment halt, APA said.
“The crisis was much deeper than thought at the time of the emergency nationalization,” Kranebitter said about Hypo Alpe. “It will cost more than what was originally known.”
Hypo Alpe expanded rapidly in the 2000s, when it was owned by Carinthia, then led by the late populist politician Joerg Haider. It became one of the biggest banks in the former Yugoslavia, with assets almost quadrupling in the five years to 2008, fueled by wholesale funding guaranteed by Carinthia.
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.
Several courts in Germany and Austria are dealing with cases related to the bank’s failure. BayernLB has sued one of Hypo Alpe’s former owners, and accused its own former CEO Werner Schmidt and other executives of ignoring warnings about the viability of the purchase. Former Hypo Alpe CEOs Wolfgang Kulterer and Berlin as well as other executives have been charged by Austrian authorities. They all denied wrongdoing.
Joerg Haider died in a 2008 car crash. Two of his allies were convicted by a court in Klagenfurt this year of having conspired with him to split kickbacks linked to the BayernLB sale. An appeal is pending. The Carinthian parliament last night dissolved itself and called snap elections in March.