UPDATE 1-Moody's eyes Hypo fallout on more Austrian banks

Wed Feb 19, 2014 5:35am EST

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VIENNA Feb 19 (Reuters) - Ratings agency Moody's has downgraded more debt of Austrian banks on concerns that the government has not ruled out letting nationalised lender Hypo Alpe Adria go bust.

"The main driver of these actions is the precedent set in the case of Hypo Alpe-Adria-Bank International AG, in which Moody's observes rising uncertainty about the intentions of the bank's current owner, the Austrian government (Aaa negative), with regards to the bank's future," the ratings agency said.

It noted that the policy debate about winding down Hypo - which Austria took over in 2009 after a decade of breakneck expansion - has not expressly excluded the possibility that bondholders may not be fully protected despite statutory guarantees.

"The debate signals that Austrian authorities more generally are willing to countenance, even if not yet to favour, bank resolutions which might greatly reduce the value of such a deficiency guarantee to ensure full and timely payment of interest and principal," it added late on Tuesday.

Moody's last week downgraded Hypo and its home province of Carinthia for the same reasons.

Fitch is set to give its next sovereign ratings update on Austria on Feb. 21, with Moody's announcement on Feb. 28.

Standard & Poor's said last week Austria's plan to set up a state-run "bad bank" to absorb toxic assets from Hypo had no immediate impact on its AA+ rating with a stable outlook.

In the latest action, Moody's cut ratings of the guaranteed long-term senior unsecured and subordinated debt instruments of Hypo Tirol Bank AG, Vorarlberger Landes- und Hypothekenbank AG and UniCredit Bank Austria AG that benefit from guarantees from individual Austrian states or the city of Vienna.

"We do not expect a big impact. This is a relatively small amount of old bonds," a Bank Austria spokesman said. The debt was originally issued by a Vienna savings bank that Bank Austria has since acquired.

Spreads on Austrian 10-year bonds over benchmark German Bunds were little changed at around 28 basis points.

Moody's placed on review for downgrade the Prime-1 short-term guaranteed deposit ratings of Hypo Tirol Bank AG while affirming the Prime-1 short-term guaranteed deposit ratings of Vorarlberger Landes- und Hypothekenbank AG.

It also placed on review for downgrade the long-term Aaa backed senior unsecured debt ratings of Pfandbriefstelle der Oesterreichischen Landes-Hypothekenbanken (Pfandbriefstelle).

The rated debt obligations of Pfandbriefstelle are guaranteed by its member banks - regional commercial and mortgage banks - and those banks' guarantors, the respective Austrian states.

For the full text of the statement from Moody's Investors Service, please click on link.reuters.com/mud96v. (Reporting by Michael Shields; Editing by Ruth Pitchford)

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