Hypo Alpe-Adria-Bank International AG, the nationalized Austrian lender crippled by bad loans, won European Union approval for as much as 8 billion euros ($11 billion) of past and future government aid.
The European Commission approved 3 billion euros of aid given over the past five years and allowed more than 5 billion euros until 2017 after Austria vowed to accelerate the lender’s breakup and wind down earlier this year, according to a presentation handed out by the Finance Ministry at a briefing in Vienna yesterday. Austria may also provide as much as 3.2 billion euros in liquidity, according to the document.
“This was the best result we could achieve,” Finance Minister Maria Fekter said at the briefing. The deal paves the way for an “orderly withdrawal” from the bank, she said.
Hypo Alpe is rivaling Oesterreichische Volksbanken AG and Kommunalkredit Austria AG unit to become the costliest Austrian bank failure after the collapse of Lehman Brothers Holdings Inc. in 2008. The bank, loaded with bad debt in the Balkans where it expanded since 2000, has also caused 3.8 billion euros of losses at former owner BayernLB when it was nationalized in 2009.
Under the agreement, Hypo Alpe will complete the sale of its domestic unit by the end of the year, stop new business in Italy and sell its Balkan bank network by mid-2015. Austria refiled its restructuring plan after the EU’s competition commissioner, Joaquin Almunia, said he doubted the bank’s viability and criticized vague plans to unwind the lender, one of the oldest state aid cases pending before the Commission.
“The moment has come to adopt a final decision that closes this chapter once and for all, gradually restores the level playing field in the market and minimizes the cost for taxpayers, who have already paid a high price,” Almunia said in a statement today.
Hypo Alpe already agreed to sell its Austrian unit, which operates mainly in the country’s southern Carinthian province, to Anadi Financial Holdings for 65.5 million euros. Closing of the deal is expected by the end of the year, the bank said in its half-year report last week.
Its biggest operating unit, which owns banks across the former Yugoslavia, has attracted interest from potential bidders including Erste Group Bank AG, which has said it would consider buying the Serbian subsidiary. Hypo Alpe expects to whittle down bidders to a short list by the end of the year, it said.
The bank is currently also revisiting plans to spin off a bad-asset unit that would reduce capital needs. It is not yet clear how many of the 18 billion euros in assets it is winding down can be transferred into a separate bad bank, Chairman Klaus Liebscher said at the briefing yesterday. He expects to make several proposals to the government by early October.
Hypo Alpe asked its advisers, Bankhaus Lampe and Sachsen AM, to come up with a plan for how to structure a bad-asset unit, people familiar with the matter said in July.
The bank lost 860 million euros in the first six months of this year after the restructuring proposal caused writedowns and risk provisions to surge. Austria gave 700 million euros in fresh capital, the amount it had set aside for Hypo Alpe in this year’s budget, to cover the loss. The lender may need as much as an additional 2.3 billion euros this year if no bad bank is set up, the Finance Ministry said.
The target of a balanced budget in 2016 is still possible to reach, even after fresh aid for Hypo Alpe, Fekter said. “There is no reason to revise the path we chose,” she said.