Austrian central bank head chides government over Hypo bank

VIENNA Mon Feb 17, 2014 1:49am EST

Related Topics

VIENNA Feb 17 (Reuters) - Austrian National Bank Governor Ewald Nowotny has criticised the government for the time taken to restructure ailing nationalised lender Hypo Alpe Adria , which the state had to take over in 2009.

The government now plans to set up a state "bad bank" that may absorb up to 19 billion euros ($26 billion) in assets from Hypo, a step that would relieve its chronic need for capital but could boost state debt to around 80 percent of economic output.

The case has sparked furore in Austria. Parliament is holding a special session on Monday to discuss it.

In an interview printed by Profil magazine on Monday, Nowotny said he had been lobbying in vain for just such a solution for years.

"We presented a number of analyses. This did not result in a quick restructuring in the direction of a bad bank. We proposed this for three and a half years but the owner - the Republic (of Austria) in the person of the finance minister - decided not to follow this recommendation," he said.

He also criticised former Hypo owner BayernLB, the Bavarian-owned landesbank, for threatening to let the lender go under during negotiations in late 2009 that led to Austria's taking over Hypo.

"Bayrische Landesbank is one of Germany's biggest banks, majority owned by Bavaria, and it was ready to let Hypo, with all its stakes in eastern Europe, go bust. To this day I find this scandalous," he said.

Nowotny said he saw an insolvency for Hypo as "off the table", but the government has refused to rule this out.

Fuelled by guarantees from its home province of Carinthia, Hypo drove itself to the brink of disaster with breakneck expansion at home and in the Balkans.

($1 = 0.7307 euros) (Reporting by Michael Shields; Editing by Mark Potter)

FILED UNDER: