VIENNA Feb 15 Austria will decide by the end of
March how to address toxic assets at nationalised lender Hypo
Alpe Adria Bank International and expects ratings
agencies to take this into account, the finance ministry said on
Saturday after a warning shot from Moody's.
It was reacting to Moody's downgrade late on Friday of the
ailing lender and its home province of Carinthia, citing the
federal government's refusal to rule out letting the bank that
it took over in 2009 go bust.
The finance ministry said it took note of the Moody's
decision and pointed out plans to create a German-style "bad
bank" that could absorb bad assets from Hypo to relieve its
chronic need for aid to meet regulatory capital minimums.
An analysis of this and other options was under way so the
government can decide in the first quarter how to proceed.
"As soon as this decision is made, the finance ministry
expects a timely assessment of the facts from the ratings
agencies," it added.
Moody's cut Carinthia to A2 from A1 and put ratings on
review for further downgrade. It cited "increased uncertainty
about the future of HAA and its implications for Carinthia's
"In particular, Moody's is concerned about public debate
indicating the central government is exploring all available
alternatives to finance the bank's resolution," it said.
While the most likely outcome was that Austria will continue
to support the bank, "the probability of other outcomes,
including the insolvency of HAA and the triggering of the
guarantee from Carinthia, has risen," it said.
Carinthia has around 12.5 billion euros ($17 billion) of
guarantees on Hypo debt that it would be unable to honour should
they come due all at once in an insolvency.
Moody's cut the guaranteed senior unsecured debt ratings of
the bank to Baa2 from A1 and the guaranteed subordinated debt
ratings to Baa3 from A2. These ratings are also on review for
"In the public debate around how to effect the bank's
resolution the possibility has been mooted, and has not
been conclusively ruled out, that bondholders may not be fully
protected in that process, notwithstanding the statutory
deficiency guarantee on their holdings," Moody's said.
"Even if such an outcome is unlikely, Moody's considers
that the fact that it is even part of the debate and has not
been ruled out implies risks for bondholders that are not
commensurate with ratings in the 'A' range."
Fitch is set to give its next sovereign ratings update on
Austria on Feb. 21, with Moody's announcement on Feb. 28.
($1 = 0.7307 euros)
(Reporting by Michael Shields, editing by David Evans)