UPDATE 2-Austria's Hypo says may need more state aid soon

Mon Mar 10, 2014 9:00am EDT

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By Angelika Gruber and Michael Shields

VIENNA, March 10 (Reuters) - Nationalised Austrian lender Hypo Alpe Adria may need more state aid quickly to close out its 2013 accounts and meet minimum capital standards, the bank said on Monday, creating another headache for the government.

More than four years after being forced to take over the bank to avoid a collapse with regional repercussions, Austria is finally trying to wind the lender down, but has yet to agree on the best way to do so.

Hypo has angered taxpayers by requiring 4.8 billion euros ($6.6 billion) in state support since 2008, including 1.75 billion that was supposed to ensure it could close the 2013 accounts.

Now it does not rule out needing more help to meet minimum capital requirements and show it is a going concern.

The bank was not specific, saying only that talks with the government were under way.

"We have no clear picture at the moment, but we are not talking about 100 million (euros). We are talking about more, a lot more," one source familiar with the discussions said.

"This has been the problem with the bank for many, many years. Whenever they say: 'That's it at the moment,' it turns out at the end of the day it's not," he added, calling the situation "a real nightmare".

Another source confirmed that Hypo needed more than 100 million to help cover losses in the first quarter of 2014. A commitment of more aid was needed to allow Hypo to repay a bond coming due at mid-month, this source said.

The sources said Hypo's auditors were not satisfied with some of its asset valuations, requiring more markdowns.

Austria had pencilled in 1 billion euros in Hypo aid this year - before it knew that more money might be needed for 2013 - part of 5.8 billion it has earmarked for aid to ailing banks over the next five years.

A restructuring deal agreed with the European Commision last year allows Austria to provide Hypo with 5.4 billion euros in capital by 2017, of which 3.65 billion remains available.

But the bank's chronic need for aid is straining state finances and prompting howls of protest from opposition parties.

DECISION THIS MONTH

An advisory task force led by National Bank Governor Ewald Nowotny has recommended hiving off 17.8 billion euros of assets into a wind-down unit, boosting state debt to 80 percent of economic output and raising this year's budget deficit by as much as 1.2 percentage points.

Finance Minister Michael Spindelegger told reporters he "took note" that the task force had ruled out having Hypo bondholders share the costs.

He said Vienna would start negotiations with former Hypo owner BayernLB - which can veto the latest wind-down plan - on sharing the burden. He repeated that Austria would decide this month how to proceed.

BayernLB had no comment. The German bank kept a say in major strategic decisions at Hypo under the 2009 bailout terms.

Spindelegger is also using outside consultants, including former Morgan Stanley banker Dirk Notheis, on other potential options, including letting Hypo go bust, a step Nowotny has vigorously opposed.

A split now seems to be emerging between Spindelegger's conservative People's Party and their senior partners in government, Chancellor Werner Faymann's Social Democrats.

Josef Ostermayer, a top Faymann aide who is now chancellery minister, said on Sunday, "The recommendations of the task force must be implemented quickly."

Both blame the former government in Hypo's home province of Carinthia for providing excessively generous debt guarantees to the bank, which led Austria to nationalise Hypo in 2009.

Carinthia still guarantees around 12.4 billion euros of Hypo debt.

($1 = 0.7214 euros) (Editing by Larry King and Tom Pfeiffer)

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