VIENNA, June 11 (Reuters) - Holders of around 900 million euros ($1.23 billion) worth of Hypo Alpe Adria subordinated debt guaranteed by the bank’s home province of Carinthia look set to be wiped out under a draft law to share costs of winding down the lender, media reported.
Austrian broadcaster ORF said holders of such debt faced “up to a total loss”. The mass-circulation Krone paper also reported that a total loss loomed but added that the state could try to settle ensuing lawsuits by offering to repay 40 percent of the debt.
The government declined comment ahead of a cabinet meeting later on Wednesday to address the draft law. It has already made clear it intends to have subordinated creditors share the pain in winding down the bank that Austria had to nationalise in 2009 to avoid a collapse with regional implications.
Debt bankers are split over whether markets will treat the step as an isolated move with only local impact, or as a path-breaking measure that could have sweeping ramifications. Other European countries have imposed hits on junior bondholders in stricken banks, but not on bonds with state guarantees.
Some say imposing haircuts on guaranteed debt would set a dangerous precedent, especially for countries like Austria and Germany where such backing is a fundamental part of funding arrangements for many financial institutions.
$1 = 0.7345 Euros Reporting by Michael Shields; Editing by Edwina Gibbs