VIENNA Feb 6 A disorderly insolvency of
nationalised Austrian lender Hypo Alpe Adria could
cost nearly 25 billion euros ($34 billion), the central bank has
warned the government, a newspaper reported on Thursday.
Der Standard reported that a letter sent in November by the
central bank and a special Hypo task force said letting Hypo go
bust may quickly cost the public sector and subordinated
creditors of Hypo up to 16 billion euros.
Fallout from such a move could hit the federal and
provincial governments by between 6 billion and 8 billion more
over the next three years by dragging down Hypo's home province
of Carinthia and jacking up refinancing costs, it added.
The central bank declined comment on the report, but has
already rejected in public the idea of letting Hypo go under for
fear it could trigger a chain reaction dragging in other banks
and ruining Austria's reputation on capital markets.
The government has said it wants healthier banks such as
Erste Group, Raiffeisen Bank International
or Bank Austria to support a "bad bank" that would
absorb toxic assets from Hypo, which Austria had to nationalise
But it has left open the door for insolvency should all else
fail. Other banks have so far been sceptical about taking part
in the scheme unless they benefit in some other way, such as
getting relief from a bank levy that raises 640 million euros a
year from the sector.
"We believe reallocation of the bank levy to help facilitate
the creation of a bad bank would be the least worst option and
most likely outcome for the Austrian banks," debt rating agency
Fitch said on Wednesday.
"The government is highly unlikely to impose insolvency or
use more aggressive 'bail-in' tools because this would threaten
systemic stability," it added.
($1 = 0.7390 euros)
(Reporting by Michael Shields; editing by Tom Pfeiffer)