Hypo bank woes poison the mood in Austria

Wed Apr 16, 2014 4:58am EDT

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By Michael Shields

VIENNA, April 16 (Reuters) - Hypo Alpe Adria, the state bank whose woes will swell Austria's debt and deficits this year, is morphing into a national bogeyman for a country fed up with the lender's chronic need for support and policymakers' failure to resolve the issue.

More than four years after the state's emergency takeover, Hypo has moved beyond being Austria's worst post-war financial debacle to become a lightning rod for grass-roots criticism of banks and the government ahead of European elections next month.

Results due on Wednesday will show Hypo lost around 1.9 billion euros ($2.63 billion) in 2013.

Taxpayers have already had to provide 5.5 billion euros in Hypo aid and the backlash from being told they will foot most, if not all, the bill for winding down the ailing bank while bearing the brunt of spending cuts has been swift and broad.

"Our children are atoning for the Hypo bust," bleated a headline in the Oesterreich tabloid on news that some class sizes will increase due to education budget cutbacks.

A Facebook campaign by a parents' group against school spending cuts shows a hippo - the bank's symbol - flattening a pupil.

Hypo's costs will push state debt to 80 percent of gross domestic product this year. Yet the ruling coalition of Social Democrats and the conservative People's Party, which just squeaked out a majority in elections last year, is forcing ministries into a spending corset to ensure the deficit does not surpass the official EU limit of 3 percent of GDP.

Opposition parties are demanding a parliamentary investigation of how Austria got into this mess and whether it really had to take over the bank, which nearly collapsed after breakneck expansion fuelled by debt guarantees from its home province of Carinthia.

UNPOPULAR BANKERS

The unaffordable guarantees granted by late far-right leader Joerg Haider's regional government forced Austria to buy Hypo from Germany's BayernLB in 1999 for a symbolic 1 euro, or else see the province go under a year after Lehman Brothers' demise.

Vienna toyed with letting Hypo go bust as a way to bail in creditors, then backed down last month amid warnings the move would ruin Austria's reputation.

Around 140,000 Austrians have signed an online petition backing a parliamentary probe, while the coalition has commissioned instead a panel of experts to look into the matter.

Hypo's CEO had to ask motorists in February to shun a "honk against Hypo" campaign urging drivers to lean on their horn as they drove by to show their disgust at the bank's mounting costs.

Austrian officials estimate it may cost up to 4 billion euros to wind down Hypo assets via a "bad bank" to be set up by September. Some bankers put the bill at at least double that.

Euro zone member Austria has imposed Europe's second-highest bank levy to help recoup the costs of propping up Hypo and other lenders during the financial crisis, prompting some banks to threaten to quit the country.

The debacle has made bankers a target for public scorn. A Gallup poll this month showed just 1 percent of Austrians surveyed thought bankers enjoyed special trust, and 81 percent said the Hypo episode was the reason why. ($1 = 0.7234 euros) (Editing by Susan Fenton)

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