Austria nationalises Hypo Group Alpe Adria

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Current owners – the German regional bank BayernLB, the Austrian mutual insurer Grazer Wechselseitige and the provincial authorities of Carinthia – will have to pump EUR 1 billion into Austria’s sixth largest bank before handing it over.

Vienna – The Austrian government agreed Monday to nationalise Hypo Group Alpe Adria, the country's sixth largest bank, in a move to avert its collapse and a possible domino-effect among the region's lenders.

After a weekend of crisis talks at the highest level and just minutes before the bank was scheduled to open for business on Monday morning, Finance Minister Josef Proell announced that the Austrian state had agreed to take over HGAA for a symbolic sum of EUR 3.

"The risk situation of this bank has created an enormous threat for the Republic of Austria, Austria as a financial centre and the entire economic area in the past days and weeks," Proell said following 17 hours of talks with his counterpart from the German state of Bavaria, Georg Fahrenschon, and the other shareholders.

"We jointly could avert this threat," Proell told a news conference.

It is the second time in the past 12 months that Austria has been forced to nationalise a bank in the wake of the global financial crisis.

HGAA announced earlier this year that risky loans in eastern Europe would wipe out billions of euros of previous aid.

But the current owners -- the German regional bank BayernLB, the Austrian mutual insurer Grazer Wechselseitige and the provincial authorities of Carinthia where HGAA is based -- will have to pump another EUR 1 billion into the troubled real estate lender before the Austrian state takes it off their hands.

BayernLB, which holds 67.08 percent, will inject a further EUR 825 million of capital by waiving liabilities. It will also leave EUR 3.0 billion of liquidity in the bank.

Carinthia, which holds 12.42 percent, will provide EUR 200 million and Grazer Wechselseitige, which holds 20.48 percent, will contribute EUR 30 million. For its part, the Austrian government will inject up to EUR 450 million.

Last month, HGAA announced that massive risk provisions would wipe out the capital injections it received from the Austrian state and shareholders over the past 12 months.

"This will avert the risk of an insolvency, with all the negative consequences for the bank's customers," Austrian central bank chief Ewald Nowotny said in a statement.

He said the rescue had also avoided "a massive risk to the entire Austrian economy at a critical point," and said the bank must urgently restructure because of its important role in Austria and southern Europe.

European Central Bank President Jean-Claude Trichet, who was involved in the rescue talks via telephone, had warned of a possible domino effect if HGAA were allowed to fail, according to finance minister Proell.

Austrian Chancellor Werner Faymann also said the rescue would avert serious damage to Austria.

For BayernLB, the decision to part with its stake as a "painful step," said BayernLB chief Michael Kammer.

The German bank acquired the majority stake of 50 percent plus one share in HGAA for EUR 1.63 billion in 2007 and has subsequently raised its shareholding to 67 percent via capital increases.

It now faces total write-offs of EUR 2.3 billion on its investment.

Austrian central bank chief Nowotny said the government was acting "very responsibly" in taking over HGAA.

"There won't be a run on the bank," Nowotny insisted.

AFP / Expatica

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