S&P may downgrade 7 Austrian banks on Hypo bail-in concern

VIENNA, June 10 Tue Jun 10, 2014 12:17pm EDT

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VIENNA, June 10 (Reuters) - Standard & Poor's has put seven Austrian banks on CreditWatch negative on concerns about the government's plan to impose losses on holders of subordinated debt issued by nationalised lender Hypo Alpe Adria and guaranteed by its home province of Carinthia, it said on Tuesday.

"This unexpected move was not our base-case scenario and in our view could signal a weakening of extraordinary state support for systemically important banks and for banks and grandfathered obligations that we consider government-related entities," the ratings agency said.

The move, which also covers the banks' senior and grandfathered debt ratings, affects Erste Group Bank, Raiffeisen Bank International and its unlisted parent Raiffeisen Zentralbank, UniCredit Bank Austria , state-owned KA Finanz, Hypo NOe Gruppe Bank and Oberoesterreichische Landesbank.

Austria is set to enter uncharted territory for bond markets when it unveils legislation on Wednesday designed to force some holders of Carinthia-guaranteed Hypo Alpe Adria debt to help pay for winding down the stricken nationalised bank.

(Reporting by Michael Shields; Editing by Pravin Char)

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