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Hypo Group: Calls for Bankruptcy Become Louder

Published: February 3, 2014; 19:07 · (Vindobona)

The Austrian government wants to prevent the bankruptcy of the nationalized lender Hypo Group Alpe Adria. However, there are better arguments for an orderly insolvency.

Hypo Group: Calls for Bankruptcy Become Louder / Picture: © Hypo Alpe-Adria-Bank International AG

For the Austrian government, the time pressure is growing. Until mid-February, the cabinet has to find a final solution for the state-held lender. In essence, there are four options: the creation of a bad bank, the bankruptcy, the participation of privately held Austrian banks in a downsizing unit and the continuation of the status quo.

According to the Oliver Wyman report, the solution of insolvency “should in total be given the highest level of acceptance when considered objectively”. Liabilities, risks and burdens of the state would be highest with the establishing of a bad bank. The biggest benefit would offer insolvency, the paper reads. As a result, the Austrian opposition parties still want to talk about the bankruptcy scenario.

Not only the Austria opposition calls for an orderly insolvency, but also economists think that the government plans are not the best alternative. Karl Aiginger, head of the Austrian Institute of Economic Research (WIFO), argued that the nationalized lender should be dissolved at the expense of creditors. “We also have to keep an eye on this alternative.” Aiginger said. Aiginger added that the insolvency may also affect Hypo Group´s former main shareholder BayernLB.

In the past few months, the Austrian government categorically rejected the option of Hypo Group´s insolvency. Moreover, the Austrian government refused to publish a paper reporting about the consequences of the four options for downsizing Hypo Group. Not only the Austrian government, but also chairman of Hypo Group´s supervisory board Klaus Liebscher and governor of the Austrian National Bank Ewald Nowotny try to prevent Hypo Group´s bankruptcy by all means.

Insiders reported that the Austrian government actually wants to prevent Hypo Group´s bankruptcy by all means. The truth behind that is the Austrian banking sector, which would have to write down loans, bonds and mortgage loans. Losses would run into the billions.

According to Nowotny, Hypo Group´s bankruptcy would cause enormous difficulties for the Austrian banking sector. In total, follow-up costs would come at € 26bn, Nowotny argued. This corresponds to 8.4% of the Austrian GDP. Moreover, the image of the Austrian financial location would be damaged, Nowotny added.

Aiginger underlined that Hypo Group´s insolvency would not damage the Austrian financial location. “On the contrary, I think that a transparent solution would be a positive signal for a transparent country”.

Hannes Androsch, President of the state-backed bank holding Fimbag, supports Aiginger. “We have to consider all options. This also applies to the bankruptcy.” Androsch said today. “However, we should have done this four years ago.”

Hypo Group was nationalized in late 2009. Since then, the problem bank has received state aids in the amount of € 3.8bn. In the years between 2000 and 2008, Hypo Group has pursued an aggressive growth strategy in Southeastern Europe.

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