Austria should stand by Hypo creditors: Nowotny

Reuters
Austria's nationalised lender Hypo Alpe Adria headquarters is pictured in Klagenfurt
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Austria's nationalised lender Hypo Alpe Adria headquarters is pictured in Klagenfurt February 12, 2014. REUTERS/Heinz-Peter Bader

By Georgina Prodhan

VIENNA (Reuters) - Austria should not demand creditors of struggling state bank Hypo Alpe Adria (HAABI.UL) take a "haircut" on the debt, central bank head Ewald Nowotny said, contradicting the country's finance minister.

Nowotny, who was on Friday put in charge of a task force set up to advise the government on how to wind down Hypo after its previous chief quit, said Austria's reputation was at stake if it did not stand by its obligations.

"I believe our model of how a state should behave should be, if you like, more like Germany, should be more like Holland, and not so much Greece or Cyprus," Nowotny told Austria's ORF radio in an interview broadcast on Saturday.

Finance Minister Michael Spindelegger had on Friday questioned whether investors who snapped up discounted Hypo debt "to try to make a quick buck" were worthy of protection.

Nowotny said: "When one has reached this decision in principle that a state honors its obligations, then one must recognize that this means also making payments to creditors that one personally does not agree with."

The resignation of Klaus Liebscher on Friday as head of both the Hypo task force and the bank's supervisory board piled more uncertainty on how Austria would deal with the problem of how to wind down Hypo, which it nationalized in 2009.

Nowotny said a state-owned "bad bank" was his preferred solution and one that should be put into practice as quickly as possible, but Spindelegger had said he had no favored option and again refused rule to out allowing an insolvency.

The split has highlighted market worries posed by Hypo, which Austria had to take over after a period of breakneck expansion in the Balkans pushed the bank to the brink of bankruptcy and threatened financial stability in the region.

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The expansion was fueled by guarantees from Hypo's home province of Carinthia, of which 12.5 billion euros ($17.2 billion) remain, posing the danger that the province would be bankrupted if Hypo were allowed to become insolvent.

Ratings agency Fitch maintained its top rating and stable outlook for Austria on Friday but said Vienna's failure to lay out a clear strategy for Hypo raised "concerns about policy coherence and credibility in the near term".

Nowotny said he estimated the winding-down of Hypo would cost Austria around 4 billion euros on top of 4.8 billion it has already provided in aid and guarantees.

And he said it would be a "sensible arrangement" if Austria's other provinces, which are nervously eyeing Carinthia's position, would contribute to the federal government some 250 million euros they collect in bank taxes.

Nowotny denied that he personally, or the central bank, which was responsible for overseeing Hypo, were to blame for what he called the "real catastrophe" of the current situation, and reiterated that he believed the auditors had failed.

"I believe the main problem was simply that many of the balance sheets weren't right and the valuations weren't right," he said. "That is a process where the central role lies with the auditors."

Deloitte (DLTE.UL), Hypo's former auditors, had rejected the accusation in an email to Reuters saying: "Deloitte is surprised by the statement of Governor Nowotny. We are convinced that we have performed the audit of Hypo Group state of the art and therefore we completely reject these allegations."

($1 = 0.7275 euros)

(Additional reporting by Michael Shields; Editing by David Holmes)

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