VIENNA, June 17 Austria's decision to wipe out
holders of subordinated debt in nationalised lender Hypo Alpe
Adria despite guarantees from its home province could increase
banks' borrowing costs by up to 1.5 billion euros ($2 billion) a
year, the bank industry warned.
Willibald Cernko, head of the Austrian Bankers Association
and chief executive of UniCredit Bank Austria, cited
that figure to reporters based on central bank estimates from
2010 on the impact of removing implicit state backing for banks.
While the exact figure may have changed since then, banks
will face higher interest rates on new debt as a result of the
planned move, the industry believes.
Cernko launched a blistering attack on the draft law on Hypo
Alpe Adria unveiled last week, saying the government had made an
"an unforgivable mistake" by unilaterally eliminating a public
"This is not just breaking confidence, it may also cause
substantial collateral damage," he told the association's annual
news conference on Tuesday. "I can only urge the people in
charge to reconsider whether it is responsible to place the
highest asset of trust in jeopardy."
Austria broke new ground for debt markets last week by
deciding to annul 890 million euros of subordinated Hypo Alpe
Adria debt guaranteed by Carinthia.
The move aims to ensure that investors - not just taxpayers
who have pumped more than 5 billion euros into Hypo so far -
share wind-down costs for the stricken lender, officials said.
Getting junior bondholders to share the pain in bank
bailouts is not new in Europe, but imposing losses on holders of
debt with an official guarantee has credit rating agencies and
investors worried about the reliability of state backing for
debt in Austria.
($1 = 0.7345 Euros)
(Reporting by Michael Shields and Angelika Gruber; Editing by