UPDATE 2-Austria wants banks to help restructure Hypo Alpe Adria

Mon Jan 27, 2014 9:03am EST

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By Michael Shields

VIENNA, Jan 27 (Reuters) - Austria will ask commercial banks to support a "bad bank" for Hypo Alpe Adria, its finance minister said on Monday, looking to spread the burden of cleaning up a lender the state was forced to bail out in 2009.

Getting healthier banks such as Erste Group, Raiffeisen Bank International (RBI) or Bank Austria on board could help hive off around 13 billion euros ($17.8 billion) in problem loans, leases and property at Hypo.

The alternative would be establishing a purely state-owned vehicle to wind down Hypo's toxic assets, a step that could boost state debt as a proportion of economic output by 5 or 6 percentage points and endanger Austria's credit ratings.

Leaders of a task force on Hypo's future met Finance Minister Michael Spindelegger and Chancellor Werner Faymann on Monday to present options including participation by other banks.

Task force head and former central banker Klaus Liebscher has called that option the best way forward, though it is one the banks have so far shown little enthusiasm for.

"The consequence is we are following the recommendations of the task force on this matter. It is the only correct way to use the expertise that we have here," Spindelegger said.

Spindelegger told reporters he hoped the government could make a final decision next month after talks with banks, and checks on whether the European Union's statistics arm agrees that a bad bank's debts could indeed remain off state books.

Austrian National Bank Governor Ewald Nowotny, who also took part in the meeting, said a bad bank could be up and running in the first half of the year although the government was also preparing for other models for winding down Hypo.

He dismissed media reports that Hypo, which has got 4.8 billion euros in taxpayer aid since 2008, could need 500 million more by the end of this month.

"I can only rely on what I get from the bank and the news we are getting is that this is not needed," he told reporters.


Under a restructuring plan agreed last year with the European Commission, Austria can give Hypo 5.4 billion euros in capital from 2013 to 2017. Of that 3.65 billion remains unused.

Big Austrian banks declined immediate comment on Monday's step, which looks set to lead to weeks of tricky negotiations.

Until now they have said they cannot justify taking part unless their shareholders get a concrete benefit such as reducing the 625 million euro levy the Austrian government has imposed on big banks and dedicating the money to financial sector support funds.

Proceeds of the bank levy - which the government plans to raise by 90 million a year - now flow into the general budget.

RBI stock fell 2.4 percent and Erste 1.6 percent by 1315 GMT. The Stoxx European bank sector index was flat.

Raiffeisen banker Walter Rothensteiner, head of the banking lobby in Austria's powerful chamber of commerce, told the Austria Press Agency on Sunday he found it hard to imagine that banks would participate without tax concessions.

To avoid a collapse unleashing regional shockwaves, Austria had to nationalise Hypo in 2009 after a decade of breakneck expansion - fuelled by debt guarantees from its home province of Carinthia - pushed the bank to the brink of bankruptcy.

Austria is still at loggerheads with Hypo's former owner BayernLB over Vienna's emergency purchase for a symbolic 1 euro.

Elections in September held up a decision on cleaning up Hypo, but Liebscher and Nowotny have urged politicians to decide by the end of this quarter so that Hypo's chronic need for capital does not keep eating into state finances.

Austria has earmarked 5.8 billion euros until 2018 for helping its ailing banks. Part-nationalised Volksbanken AG has also not ruled out needing more aid, but Spindelegger has taken a hard line on this. (Editing by Christoph Steitz and John Stonestreet)

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