January 29, 2014 / 3:31 PM / 4 years ago

UPDATE 1-Austrian finance minister opposes Hypo insolvency

* Spindelegger says Hypo insolvency not the way forward

* Social Democrat parliamentary leader also opposes idea

* Austria wants commercial banks to support restructuring (adds finance minister comments)

VIENNA, Jan 29 (Reuters) - Letting nationalised lender Hypo Alpe Adria go bust is not the way to shelter taxpayers from the bank’s woes, Finance Minister Michael Spindelegger said on Wednesday, dismissing talk that such a move may still be an option.

He told parliament the best way forward remained the government’s plan to get commercial banks to support a “bad bank” that would absorb toxic assets from Hypo, which Austria had to nationalise in 2009.

Spindelegger was responding to requests from the opposition Greens party about his strategy for handling loss-making Hypo, which has already got 4.8 billion euros ($6.6 billion) in state aid and could get up to 1 billion more in 2014.

“Even if you like to keep saying...that an insolvency scenario would solve everything, I can only point to what the experts have presented to us in this regard: that is not the case,” Spindelegger said.

“We have to favour instead a different solution that always aims to produce what is most favourable for taxpayers.”

The parliamentary leader of the ruling Social Democrats (SPO) had earlier rejected as “playing with fire” speculation that the country could let Hypo go bust while propping up its home province of Carinthia, which has more than 12 billion euros in guarantees on Hypo debt.

The Wiener Zeitung paper reported this week that this scenario was under discussion despite earlier assurances from the government that this was ruled out.

Andreas Schieder, a former finance ministry state secretary who now heads the SPO group in parliament, told the Wiener Zeitung this was too dangerous a path to consider.

“I see this as playing with fire. There are no contained bankruptcies. Questions about deposits, guarantees and spillover effects cannot be answered in a controlled way,” he said, echoing concerns from the central bank and other lenders.

$1 = 0.7319 euros Reporting by Michael Shields; Editing by Mark Potter and Elaine Hardcastle

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