Ex-Hypo Alpe chief confesses in put option trial

VIENNA Tue Jan 21, 2014 11:15am EST

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VIENNA Jan 21 (Reuters) - The former head of Austrian lender Hypo Alpe Adria has confessed to abusing his authority by concealing the existence of put options that investors received in 2006 with preference shares the troubled bank sold to boost its capital.

Ex-Chief Executive Wolfgang Kulterer passed a note to the judge in a breach of trust trial against him and three other former Hypo executives saying that he erred by hiding the put options, his lawyer, Ferdinand Lanker, said on Tuesday.

The admission could help Germany's BayernLB, which is alleging in a separate court case it was duped into buying Hypo for 1.7 billion euros ($2.3 billion) in 2007 from the Austrian province of Carinthia and private investors.

Hiding the put options from other investors and supervisors made Hypo's capital position appear stronger than it actually was because it obscured the fact that investors who bought the preference shares could get their money back on demand.

The covert puts made it easier for Hypo to raise money it urgently needed to strengthen its weak balance sheet by making the share sale more attractive to buyers.

The admission marked a surprise turn in the trial against the four former Hypo executives accused of cloaking the true state of the nationalised lender. Kulterer had earlier denied wrongdoing.

Austria, which had to nationalise the bank in 2009 to avoid a collapse with regional implications, has in turn threatened to sue BayernLB to have that ill-starred purchase overturned.

The parallel cases all revolve around just when Klagenfurt-based Hypo started to slide into terminal decline, nearly imploding in 2009 after a decade of breakneck expansion fueled by generous Carinthian state subsidies.

The bank's chronic need for more capital has complicated Austria's efforts to cut its debt and deficits.

Kulterer regrets overstepping his authority by going ahead with the put option plan, Lanker said, adding: "He is sorry. He also stressed that he never enriched himself personally and did not consciously want to harm the bank."

Lanker said the confession would be irrelevant if the court finds the plan to issue preference shares with put options was proper.

The court confirmed Kulterer had submitted the letter.

The trial resumes on Feb. 26.

($1 = 0.7373 euros) (Reporting by Michael Shields and Angelika Gruber; Editing by Erica Billingham)

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