Austria Starts Talks to Wind Down Rescued Hypo Alpe

The Austrian government is beginning talks with the nation’s banks to gain their support for winding down nationalized Hypo Alpe-Adria-Bank International AG in a way that keeps it off the state’s books.

Austria will start negotiations with the banks immediately and will decide next month whether it’s possible to implement a model where they contribute to the cost, Finance Minister Michael Spindelegger told journalists in Vienna today. It will also hold discussions with the European Union’s statistics office Eurostat about whether it can keep Hypo Alpe’s bad assets off government books under the EU’s debt rules, he said.

“There will be in-depth talks with the banks toward a participation model,” Spindelegger said. “At the same time we’ll also talk to Eurostat to make sure it’s accepted. This should all go rather quickly because we need the basis for a decision quickly.”

Four years after Hypo Alpe’s rescue, Austria is still debating who should carry the cost of the company’s ill-fated transformation from a provincial bank into a financier for the former Yugoslavia. Spindelegger and Chancellor Werner Faymann have dismissed plans to require bondholders to take losses, leaving taxpayers saddled with about 19 billion euros ($26 billion) of assets.

Setting up a vehicle majority-owned by Austrian banks, similar to Ireland’s National Asset Management Agency, could avoid adding the assets to Austria’s debt stock under the EU’s Maastricht debt rules. A purely state-owned bad bank, like Germany’s FMS Wertmanagement AoeR, would push the country’s debt levels beyond 80 percent of gross domestic product.

Persuading Shareholders

The chiefs of Erste Group Bank AG and UniCredit Bank Austria AG, Austria’s two biggest banks, said last year they will only support a bad bank that’s “commercially viable” because they need to justify any decision to shareholders.

Hypo Alpe Chairman Klaus Liebscher, who has led a group of experts advised by Germany’s SachsenAM and Bankhaus Lampe to study alternatives for a bad bank, presented his models together with Austrian central bank Governor Ewald Nowotny to Spindelegger and Faymann today. According to his favored plan, Austrian banks will contribute membership fees to a “bank stabilization fund” that would own the bad bank.

To make it commercially feasible for the lenders, contributions to the fund may be deductible from Austria’s bank levy and the fund could serve as a precursor to a bank restructuring fund Austria will have to set up under new EU rules anyway, Liebscher said.

The bank-supported model is the “preferred” option for the time being, and the government will consider a “cascade” of alternatives if it proves unworkable, Spindelegger said.

Before it's here, it's on the Bloomberg Terminal.