Hypo bank sell-off may cost Austria up to $7.1 billion more

Reuters
A man leaves the office of nationalised Austrian lender Hypo Alpe Adria in Vienna
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A man leaves the office of nationalised Austrian lender Hypo Alpe Adria in Vienna March 12, 2013. REUTERS/Heinz-Peter Bader

By Michael Shields and Foo Yun Chee

VIENNA/BRUSSELS (Reuters) - Selling off bailed-out Hypo Alpe Adria (HAABI.UL) bank may cost Austrian taxpayers up to 5.4 billion euros ($7.1 billion) in fresh capital by 2017 under a plan approved on Tuesday by the European Commission, Austrian finance ministry officials said.

Brussels' blessing ends years of wrangling with Vienna over cleaning up Hypo, which Austria had to nationalise in 2009 to avoid a collapse that would have sent shock waves through fragile financial markets across Europe.

"The moment has come to adopt a final decision that closes this chapter once and for all, gradually restores the level playing field in the market and minimises the cost for taxpayers, who have already paid a high price," European Competition Commissioner Joaquín Almunia said.

Annoyed by the slow pace of restructuring, Almunia had threatened in March to shut down Hypo by the end of 2013, a radical step that Austrian officials said could have saddled the country with a 16 billion euro (13.53 billion pounds) hit.

"This outcome was the best one possible for us to achieve," Finance Minister Maria Fekter said of the Commission's ruling.

Hypo pushed itself to the brink of insolvency with a decade of breakneck expansion and a drive into the Balkans before the 2008 financial crisis struck.

A leading lender in central and eastern Europe, Hypo now has to sell its Balkans banking network by mid-2015 and has halted new business at its Italian bank unit. Hypo has already agreed the sale of its Austrian bank unit.

Hypo may need 2.6 billion euros in extra funds under a "base scenario" and as much as 5.4 billion in a "stress pessimistic scenario" between now and 2017 to break itself up and wind down.

Austria says it has already pumped in 3.1 billion euros of aid. The European Commission says that figure is higher.

The plan also earmarks a further 2.5-3.2 billion euros in short-term liquidity assistance in 2017.

COMPLETE MESS

Hypo needs between 1.9 billion and 3 billion euros more capital this year alone, including 700 million now set aside in the budget, the government said. Last week the bank reported a first-half group loss of 860 million euros.

The bank's deputy chairman, Rudolf Scholten, on Monday described the lender as a "complete mess" when the state looked at its books and system of internal controls.

Fekter said she saw no reason to change state forecasts for cutting debt and deficits, but that the government that takes office after September 29 elections would need to reaffirm the targets.

Income from a tax deal with Switzerland would help cushion the blow so that sharp spending cuts were not on the cards, she said. "We need a balanced budget by 2016, but we don't want to put together a new austerity package," she told reporters.

Finance ministry and bank officials said the projections for more state aid did not include the potentially positive impact of an envisaged "bad bank" wind-down unit for toxic Hypo assets.

The state aims to have healthier banks hold a majority stake in this vehicle so that its debts are kept off state books, sparing taxpayers as much of any potential burden as possible.

Details are due by next month on the plan, which other banks have viewed with scepticism unless they get something in return for taking part.

Tuesday's news comes just as Austrian election campaigns are heating up before the vote at month's end.

Fekter, a conservative accused by opposition parties of letting Hypo's problems fester, laid the blame for the debacle squarely at the feet of the former Carinthian state government then led by late far-right leader Joerg Haider's Freedom Party.

She said the state government's 20 billion euros worth of guarantees let the bank pursue reckless expansion that lacked any semblance of proper risk management.

The prospect of those guarantees suddenly coming due meant Austria, under intense pressure to rescue Hypo a year after Lehman Brothers failed, had no choice but to take it over from then-owner BayernLB late in 2009, she said.

(Additional reporting by Angelika Gruber; Editing by Louise Ireland)

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