Austria should stand by Hypo creditors: Nowotny

Sat Feb 22, 2014 8:29am EST
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By Georgina Prodhan

VIENNA (Reuters) - Austria should not demand creditors of struggling state bank Hypo Alpe Adria HAABI.UL take a "haircut" on the debt, central bank head Ewald Nowotny said, contradicting the country's finance minister.

Nowotny, who was on Friday put in charge of a task force set up to advise the government on how to wind down Hypo after its previous chief quit, said Austria's reputation was at stake if it did not stand by its obligations.

"I believe our model of how a state should behave should be, if you like, more like Germany, should be more like Holland, and not so much Greece or Cyprus," Nowotny told Austria's ORF radio in an interview broadcast on Saturday.

Finance Minister Michael Spindelegger had on Friday questioned whether investors who snapped up discounted Hypo debt "to try to make a quick buck" were worthy of protection.

Nowotny said: "When one has reached this decision in principle that a state honors its obligations, then one must recognize that this means also making payments to creditors that one personally does not agree with."

The resignation of Klaus Liebscher on Friday as head of both the Hypo task force and the bank's supervisory board piled more uncertainty on how Austria would deal with the problem of how to wind down Hypo, which it nationalized in 2009.

Nowotny said a state-owned "bad bank" was his preferred solution and one that should be put into practice as quickly as possible, but Spindelegger had said he had no favored option and again refused rule to out allowing an insolvency.

The split has highlighted market worries posed by Hypo, which Austria had to take over after a period of breakneck expansion in the Balkans pushed the bank to the brink of bankruptcy and threatened financial stability in the region.   Continued...

Austria's nationalised lender Hypo Alpe Adria headquarters is pictured in Klagenfurt February 12, 2014. REUTERS/Heinz-Peter Bader