Hypo Alpe-Adria-Bank International AG, a nationalized Austrian lender, said it will drop below legal capital requirements by the end of November and has started talks to get new funds from the government.
The bank determined the shortfall based on its current capital projections and its expectations for the full year, it said in a statement late yesterday, without elaborating. The company got 700 million euros ($936 million) from the Austrian government in September after reporting an 860 million-euro loss in the first six months of the year.
Hypo Alpe “is in final talks with its owner to ensure it meets regulatory capital requirements through appropriate measures” that comply with European Union rules for state aid, the Klagenfurt-based bank said.
Hypo Alpe, nationalized in 2009 when it was owned by Germany’s Bayerische Landesbank, has been one of the most costly bank failures of recent years for Austrian taxpayers. The European Union told the country in September to sell the bank’s good assets and start winding down the bad ones by 2015 in return for allowing as much as 8 billion euros in aid.
The bank, whose main business is in the former Yugoslavia, may need as much as 1.3 billion euros in capital this year, Austrian newspaper Der Standard reported earlier, citing unidentified people close to the government. Hypo Alpe spokesman Nikola Donig declined to comment on the number.
In addition to the short-term capital needs, the government in Vienna will have to decide next month at the latest whether to add as much as 19 billion euros of Hypo Alpe’s liabilities to its existing borrowings to wind down the bank, as ordered by the EU. That would push Austria’s debt to more than 80 percent of its economic output, a level that might trigger cuts to its investment-grade credit rating.
Austria lost its top AAA rating at Standard & Poor’s in January last year together with France, mostly because the ratings company saw its banking industry’s worsening assets as a “contingent liability.”
How to deal with Hypo Alpe is an important part of the negotiations between the two major Austrian parties on forming a government after Sept. 29 elections.
The government’s long-term budget plan is off track, said Karl Aiginger, the head of the government-sponsored Wifo research institute, in an interview with Austrian state broadcaster ORF yesterday. He cited the additional aid for the lender, which isn’t budgeted, as well as underestimated pension subsidies and overestimated tax revenues.
The new government may face an annual shortfall on its long-term budget plan of as much as 8 billion euros, or 2.6 percent of gross domestic product, through 2018, Aiginger said.