Austria’s Spindelegger Keeps Options Open on Hypo Bonds

Austrian Finance Minister Michael Spindelegger stuck to his line of having “no taboos” about how to wind down Hypo Alpe-Adria-Bank International AG after a task force he installed advised against insolvency yesterday.

Spindelegger, struggling to contain public anger about tax money going into the nationalized lender, told journalists in Vienna the task force led by central bank Governor Ewald Nowotny told him there was no possibility to bail in Hypo Alpe bondholders and that he shouldn’t let the bank go insolvent. He “acknowledged” the group’s report and will ask his own advisers to review options again, Spindelegger said.

“I’m not saying that insolvency is the best scenario, I’m saying that I’m approaching this matter without taboos,” Spindelegger said. “The task force says it’s convinced that it’s impossible to let bondholders participate -- I have to take note of that.”

The costs for dismantling Hypo Alpe still enrage voters more than four years after the departure of shareholders including Germany’s Bayerische Landesbank prompted its nationalization. Time pressure is rising as the bank said it may soon breach capital requirements unless it gets more aid, while a bond repayment is coming due March 17.

Nowotny’s task force recommended to set up a 17.8 billion-euro ($24.7 billion) bad bank for Hypo Alpe, which would drive Austria’s state debt beyond 80 percent of gross domestic product and may push its deficit toward 3 percent.

Capital Need

Hypo Alpe can’t rule out that it may soon fall short of legal capital requirements, the Klagenfurt, Austria-based lender said in a statement released after Spindelegger’s briefing today, citing the process of putting together its year-end results. The bank is in discussion with the government about how to ensure it will meet those requirements, the lender said. Another capital injection would come on top of 4.8 billion euros that already went into it.

The bank also has a 750 million-euro bond coming due March 17 that’s part of 12.5 billion euros in securities outstanding that enjoy a guarantee of the province of Carinthia, a former Hypo Alpe shareholder. Spindelegger, who has said that those are the only bonds he’s targeting for a possible contribution, said he wouldn’t interfere with the bank’s decision about redemption.

“This is a matter for the bank to decide and I presume it will do what it considers to be the right thing,” he said. “If there are liabilities, they have to be served.”

Bavarian Talks

Austria will now start negotiations with BayernLB about setting up the bad bank, because the Bavarian state-owned lender has to approve the plan, Spindelegger said. The talks will start on a “technical level” and it would make sense to have talks at a later point between the Austrian and the Bavarian government as the owners, he said.

Hypo Alpe, Austria, BayernLB and Bavaria are embroiled in numerous legal battles over the Munich-based bank’s ill-fated purchase, pending in courts from Munich to Vienna and Klagenfurt. Hypo Alpe owes 2.3 billion euros to its former parent that it refuses to repay, while BayernLB is suing former Hypo Alpe shareholders saying it was duped into the deal.

The government may also introduce special legislation to force a contribution from Carinthia, whose “reckless” bond guarantees were the main reason the government was forced into the bailout in the first place, Spindelegger said. The province still has about 500 million euros from the sale of its stake to BayernLB bunkered in a fund.

Spindelegger reiterated that he and Chancellor Werner Faymann will decide about how to deal with Hypo Alpe before the end of March. He will meet opposition leaders March 12 to brief them about the task force report, and will receive further input from his own advisers this week.

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