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UPDATE 1-Austria authorises another capital shot for Hypo
March 12, 2014 / 11:07 AM / 4 years ago

UPDATE 1-Austria authorises another capital shot for Hypo

* Government approves another capital injection

* Supervisory board may determine capital need on Friday

* Chancellor warns against flirting with bank bankruptcy (Adds finance minister, chancellor comments, background)

VIENNA, March 12 (Reuters) - Austria has approved a quick capital injection for ailing state bank Hypo Alpe Adria even though the exact amount it needs is not yet known.

Finance Minister Michael Spindelegger said on Wednesday the state would stand behind the loss-making bank, which needs the capital to finalise its 2013 accounts and is due to pay back a 750 million euro ($1.04 billion) bond on Monday.

“Auditors have sent a warning letter. We need fresh capital for Hypo and relatively quickly. We have provided for this and got cabinet authorisation for it,” he told reporters after a cabinet meeting.

Hypo, which has already received 4.8 billion euros in state aid since 2008, will hold a supervisory board meeting on Friday at which it may determine how much more capital it needs to close its 2013 accounts.

Two sources familiar with the matter said the bank had sufficient liquidity for Monday’s bond payment.

An expert group led by Austrian Central Bank Governor Ewald Nowotny has recommended in a report to the government that Hypo should be split into two - a bad bank for its toxic assets and its Balkan banking network, which is to be sold.

But Spindelegger again on Wednesday refused to rule out the option of letting Hypo go bankrupt, which could take down with it the province of Carinthia, the bank’s former owner, which provided it billions of euros in guarantees.

Hypo was nationalised in 2009 after over-reaching itself in an ambitious Balkan expansion.

Chancellor Werner Faymann, whose Social Democrats rule in coalition with Spindelegger’s conservative People’s Party, warned that Austria’s creditworthiness should not be put into play by flirting with the idea of bankruptcy.

Spindelegger expressed impatience over the need for another capital injection for the bank on top of 800 million euros it received in December.

“I would like to know from the bank where the money it received in December went, and why they really need fresh capital now. We will not lightly inject this into a wind-down vehicle,” he said.

Spindelegger, who has hired several experts and groups to advise him on the Nowotny-led report, said the government was sticking to its timetable to make a decision on what to do with Hypo by the end of March. ($1 = 0.7212 Euros) (Reporting by Angelika Gruber; Writing by Michael Shields and Georgina Prodhan. Editing by Jane Merriman)

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