Austria Revisits Hypo Alpe Bad-Bank Plans Dismissed by Fekter

Austria is reconsidering plans to establish a separate “bad bank” to wind down delinquent loans at nationalized lender Hypo Alpe-Adria-Bank International AG, a move that could add to the nation’s debt.

The government is discussing whether separate wind-down units modeled on Germany’s FMS Wertmanagement AoeR or Austria’s KA Finanz AG would make sense for Hypo Alpe, Chancellor Werner Faymann told journalists in Vienna today. The Finance Ministry is also in talks with the European Union to allow more time for the bank to sell its viable assets, he said.

“There are intensive consultations about whether there could be ‘bad-bank’ parts like the German or the previous Austrian model,” Faymann said after the weekly government meeting. “The goal is to manage as many assets as possible as beneficial as possible.”

Austria is under pressure by EU Competition Commissioner Joaquin Almunia, who is reviewing state aid of as much as 2.2 billion euros ($2.9 billion) the country has provided to the lender since 2008. A firesale of the bank’s assets by the end of the year may cause as much as 14 billion euros of additional losses for Austrian taxpayers, according to a central bank document cited by Profil magazine April 27.

Finance Minister Maria Fekter last year refused to create a bad bank for Hypo Alpe. Such an institution would bring Austria’s debt to “exorbitant levels,” she said Oct. 15. The liabilities of Germany’s FMS, which is managing the risky and non-performing assets of failed mortgage lender Hypo Real Estate AG, are counted as part of Germany’s state debt.

Fekter said a draft plan for how to deal with Hypo Alpe couldn’t be discussed in this week’s government meeting and she would present a new plan next week. She said the sale of the bank’s viable units in Austria, Italy and the former Yugoslavia would have to be “intensified.”

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