Austria’s Erste Joins UniCredit in Snubbing Bad Bank Plan

Austria’s two largest lenders signaled they’re opposed to supporting a “bad bank” for unprofitable assets of nationalized lender Hypo Alpe-Adria-Bank International AG.

Erste Group Bank AG, the nation’s biggest lender, and UniCredit Bank Austria AG, the Italian-owned No. 2, ruled out participating in a deal in which they would co-own Hypo Alpe’s wind-down unit to support the nation’s banking industry. Raiffeisen Bank International AG and Bawag PSK Bank AG declined to comment because they haven’t seen a proposal.

“We haven’t been asked and I hope we won’t be,” Erste Chief Executive Officer Andreas Treichl told shareholders at the bank’s annual general meeting in Vienna today. “We’re already paying the highest bank levy in Austria. I would say our contribution to the Austrian banking sector is fully covered by this and we don’t intend to make any additional contribution.”

Treichl joined Bank Austria CEO Willibald Cernko who yesterday said in an e-mailed response to questions that he’s “definitely ruling out an engagement from our side.”

Austria’s former central bank governor Klaus Liebscher earlier this week called on the nation’s lenders to help resolve an impasse with the European Union over how to wind down Hypo Alpe. A bad bank modeled on Ireland’s National Asset Management Agency, which is majority-owned by private investors, would be the “optimal model,” he told Austrian TV.

‘Optimal Model’

“I can’t expect that the first reaction of the banks to be asked would be glowingly positive,” Liebscher said. “But this would be the optimal model in the interest of the other banks as well, because they would serve Austria as a financial center and thereby serve themselves well.”

Joaquin Almunia, the EU’s top antitrust official, told Austria in March that its restructuring plan for Hypo Alpe wasn’t good enough to justify retaining about 2.2 billion euros ($2.8 billion) of state aid the lender has received since 2008, and he may order the bank to pay it back. Liebscher leads a task force aiming to satisfy Almunia by drafting a new plan.

Hypo Alpe is speeding up the sale of its businesses in Austria, Italy and the former Yugoslavia. The bad bank plans refer to the unsellable rest, a unit that owns non-performing assets to be wound down. They include Croatian hotel loans, leasing deals across eastern Europe and assets seized as loan collateral, such as shopping malls, yachts and tractors.

Bad banks in other European countries fall into two broad categories -- Ireland’s NAMA and Spain’s Sareb are majority-owned by private investors, mostly from the respective domestic financial industries. While their liabilities aren’t added to state debt, the government had to take initial losses caused by asset writedowns to create an incentive for the investors.

By contrast, Germany’s FMS Wertmanagement AoeR is a state agency, which means it’s consolidated on the German government’s balance sheet. Austria itself has a hybrid bad bank in state-owned KA Finanz AG, which doesn’t count to its debt because it retained its banking license.