Austria Sets Aside 1 Billion Euros for Hypo Alpe Aid

Austria is setting aside 1 billion euros ($1.4 billion) in aid for Hypo Alpe-Adria-Bank International AG this year as it seeks the best way to wind down the lender that was nationalized in 2009.

The budget provision, which exceeds the 400 million euros to 900 million euros the government forecast last year, is a precautionary measure that could be reduced, the Finance Ministry said in an e-mailed statement today. Total aid for Hypo Alpe, based in southern Austrian Klagenfurt, won’t exceed the 11.7 billion euros the European Union has approved until 2018, the ministry said.

“We have planned 1 billion euros with regards to Hypo in this year’s budget,” Finance Minister Michael Spindelegger told journalists after the weekly government meeting in Vienna. The precise amount for the aid depends in part on talks with Austrian banks about their participation in a “bad bank” for Hypo Alpe, he said.

Four years after Hypo Alpe’s rescue, Austria is still debating who should pay for 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 and are now trying to bring other banks on board.

‘Commercially Viable’

The chiefs of Erste Group Bank AG and UniCredit Bank Austria AG, Austria’s biggest lenders, said they will only support a bad bank that’s commercially viable because they need to justify any decision to shareholders. Bank Austria Chief Executive Officer Willibald Cernko said last year that cutting the country’s banking tax 20 percent and contributing the rest to a bank resolution fund could make his participation viable.

Faymann said at the same press conference he’s open to using part of the levy for the Hypo Alpe bad bank as long as the lenders’ total contribution remained the same. The tax, which was introduced in 2010, is due to rise to 640 million euros annually this year under changes the government proposed to Parliament this month.

“We have a relatively high banking levy on a European level,” Faymann said. “To use part of that directly for this vehicle, in case there is one, that’s what the levy is for. That would be possible.”

Austria also needs approval for a bad bank from Hypo Alpe’s owner before the nationalization, Germany’s Bayerische Landesbank, Spindelegger said. Winning that is complicated by Austria’s refusal to repay loans BayernLB, which is owned by the German state of Bavaria, gave to Hypo Alpe. That case is pending in a Munich court.

Prime Minister Horst Seehofer told Bavarian lawmakers today BayernLB’s legal case against Hypo Alpe was strong and he didn’t see a reason to settle, the Austria Press Agency reported.

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