VIENNA, Jan 19 (Reuters) - Austria will not exceed the 5.8 billion-euro ($7.9 billion) limit it has set for helping its ailing banks, despite the toxic assets racked up by national lender Hypo Alpe Adria, Finance Minister Michael Spindelegger told a Sunday newspaper.
Hypo’s [HAABI.UL} chronic need for state aid since Austria took it over in 2009 is complicating the country’s efforts to cut deficits and posing a challenge for the renewed coalition of Social Democrats and Spindelegger’s conservatives that took office last month.
The bank used guarantees from its home province of Carinthia to fuel unbridled expansion in the years leading up to the financial crisis that brought it to the brink of insolvency. It now has some 18 billion euros of bad loans and non-performing investments.
Asked by the Oesterreich paper if the 5.8 billion bank aid cap would suffice, Spindelegger said: “We most seriously assume this and want to spend even less.”
To clean up Hypo the government is considering either creating a “bad bank” - majority owned by healthy banks so its debts stay off state books - or else parking toxic assets in a public vehicle that could boost state debt to 80 percent of economic output, a red line for rating agencies.
Spindelegger declined to indicate which course of action he preferred, saying only he wanted to spare taxpayers - who have funded 4.8 billion euros in capital, direct cash infusions and guarantees since 2008 - any additional burdens from Hypo, which Austria took over from Germany’s BayernLB to prevent a collapse with regional implications.
But Austria’s healthy banks, such as UniCredit unit Bank Austria, Erste Group and Raiffeisen Bank International, have shown little appetite for taking on Hypo’s “bad bank” unless the government provides enticements such as cutting a bank levy that is now slated to go up by 90 million euros a year.
Spindelegger, whose People’s Party was in third place behind the right-wing Freedom Party and the Social Democrats in a Gallup poll the paper published, said he would discuss Hypo on Monday with European Competition Commissioner Joaquin Almunia.
Under a restructuring plan agreed last year with the Commission, Austria can provide Hypo 5.4 billion euros in capital from 2013 to 2017.
Partly state-owned Volksbanken has also not ruled out requiring more aid, but has dismissed as speculation a report it needed 1 billion euros in 2014. Spindelegger has taken a hard line on more aid.
Financial experts have expressed scepticism that Austria can hit its target of eliminating its structural budget by 2016 given increased spending on family benefits agreed last week.
Spindelegger insisted the goal was in reach after a planned deficit of 1.5 percent of gross domestic product this year.
$1 = 0.7376 euros Reporting by Michael Shields; Editing by Sophie Walker