VIENNA May 8 Austria may adopt Ireland's "bad bank" model to help reorganise nationalised lender Hypo Alpe Adria before an end-May deadline from the European Commission for a new and more effective revamp plan, sources close to the matter said.
Brussels and Vienna are at loggerheads over the pace of overhauling Hypo, with the Commission keen for its operating assets to be sold by the end of the year but the Austrians fearful rushed sales could hurt state finances ahead of elections due by late September.
To break the impasse, Austrian officials are looking to Ireland's National Asset Management Agency (NAMA), often referred to as the country's "bad bank", as a potential model, two sources close to the matter said.
Dublin set up NAMA in 2009 to relieve pressure on a banking sector crushed by excessive property lending. It bought deeply discounted loans - both good and bad - worth a nominal 74 billion euros from banks in return for state-backed bonds.
Its goal was to wring as much money as possible from the loans over a decade. What makes the model attractive to Austria is that NAMA set up a special investment vehicle in which three private investors held the majority, thus allowing Ireland not to count its debts as state debt.
Just which investors Austria could attract remains a problem.
"If you want to do such a model, you can only force banks and insurers to take part, but this is feasible only if certain incentives are there: meaning they need something in return," one source familiar with the discussions told Reuters.
"I don't think that private institutions will take part in a major way," the source said, noting most big Austrian lenders had already taken state capital themselves and were not paying it back for the time being.
Another suggested the financial sector might have to be pushed into taking part in the plan, but did not say how.
Spain's bad bank, which is broadly based on the NAMA model, has 4.8 billion euros in private capital, more than half of which was contributed by Spain's healthy banks to reduce the burden on state books.
Hypo Alpe Adria, which has swallowed more than 2 billion euros in state aid, has said a quick sale of businesses in Austria, Italy and the Balkans could saddle taxpayers with losses of between 5 billion euros and 6 billion. The bill could be even higher given its 16.5 billion in publicly guaranteed debt.
But European Union Competition Commissioner Joaquin Almunia has lost patience, warning Hypo may have to pay back its state aid if it does not improve on its restructuring plans.
Finance Minister Maria Fekter has in the past opposed creating a bad bank to handle the woes of nationalised lenders including Hypo and Kommunalkredit, in part for fear it could trip up her plans to generate a budget surplus by 2017 and get state debt under 60 percent of GDP by the end of the decade.
"We have to see that wrong decisions don't jeopardise state finances. This is all being negotiated with the European Commission," she told a panel discussion late on Tuesday.
Almunia's pressure for quick bank sales comes at a time when it is nearly impossible to do such deals, she said.
"It is a dilemma that no one wants to buy a bank at the moment. It will be hard to do this in a way that protects taxpayers," Fekter added. "All countries have state-owned banks and they all have to sell them, so there are lots of banks on the market but no buyers."
Officials say Austria hopes to enlist powerful allies to help persuade Almunia that Hypo - nationalised under EU and ECB pressure to ensure financial stability - was too important in the Balkans to simply shut down.
They may also argue that the traditional five-year window which countries get to exit state aid to banks should start from the time of Hypo's nationalisation in 2009, rather than from the time it first got state aid in 2008. (Editing by Carmel Crimmins and David Holmes)