Austria's FMA Said to Tell Heta Creditors to Write Down Debt

  • FMA recommends writing down seniors to 30%, juniors to zero
  • Regulator says Carinthian guarantees don't avoid write-down

Austria’s banking supervisor recommended that the nation’s banks write down bonds of Heta Asset Resolution AG after it earlier imposed losses on Heta’s creditors, according to two people with knowledge of the matter.

The Finanzmarktaufsicht, or FMA, which is responsible for banking supervision in Austria and for the resolution of Heta, told banks they can’t assume that guarantees for Heta’s debt issued by the province of Carinthia will help offset losses, according to the people, who asked not to be identified because the discussion is private.

The authority told banks to write down Heta’s senior bonds to 30 percent of face value, and junior bonds to zero, one of the people said. The FMA went farther than the European Central Bank, which last year told banks that own Heta bonds to write them down to 50 percent.

The FMA on April 10 cut Heta’s senior liabilities by 54 percent and extended the maturities of all eligible debt to Dec. 31, 2023, to help cover an 8 billion-euro ($9 billion) hole in Heta’s balance sheet. It also cut subordinated liabilities to zero. FMA took control of Heta last year in the first application of EU rules designed to end taxpayer-funded bank rescues.

The write-down recommendation exceeds the 54 percent debt cut because the net present value of the assets is further reduced by the maturity extension, the FMA says in its message to the banks, according to one of the people.

The FMA declined to comment on the matter.

Hypo NOe Gruppe Bank AG, Kommunalkredit Austria AG and Vorarlberger Landes- und Hypothekenbank AG are the biggest known Austrian bank creditors of Heta, Carinthia’s former state bank which collapsed over bad loans in the former Yugoslavia. Most of Heta’s debt is held by German banks and insurers.

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