VIENNA, Feb 6 (Reuters) - 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 in 2009.
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