March 26, 2015 / 12:57 PM / 4 years ago

ECB queries banks on Austria exposure after Hypo move: sources

VIENNA (Reuters) - The European Central Bank has asked euro zone lenders to detail their exposure to Austria and provisions they plan to make after the country halted debt repayments by a “bad bank” winding down defunct lender Hypo Alpe Adria, financial sources told Reuters.

General view of the exterior of the European Central Bank (ECB) building on the inaugural of it's new headquarters in Frankfurt March 18, 2015. REUTERS/Wolfgang Rattay

The questionnaire sent to banks and a video conference to discuss the potential fallout underscore the sensitivity of Austria’s path-breaking move to invoke new European rules on ensuring creditors, not just taxpayers, fund bailouts.

“They are taking this seriously,” one senior executive said of the ECB on the condition he not be identified.

The ECB declined to comment.

Bankers say Austria’s credibility is on the line after the second move in two years to impose losses on creditors of Hypo, many of whom assumed they had iron-clad backing from the state.

The Financial Market Authority (FMA) took control of the Heta Asset Resolution [HAABI.UL] bad bank this month and imposed a debt moratorium until May 2016 after an outside audit exposed a capital hole of up to 7.6 billion euros which the government was not prepared to fill.

Austria - which like Germany and Britain has already adopted ahead of schedule the new European rules on “bailing in” creditors - thus became the first country to deploy them in dealing with Heta, which has no bank license but rather acts as a wind-down vehicle for Hypo Alpe Adria assets and liabilities.

The debt moratorium gives the FMA time to work out a plan that ensures equal treatment of creditors. It has given no details on what size “haircut” bondholders might expect and has not ruled out sending Heta into insolvency.

The moratorium on more than 11 billion euros in Heta debt has sent shock waves beyond Austria.

Germany’s Bundesbank central bank said German banks have around 5.5 billion euros in Heta exposure. Germany’s deposit protection fund had to take over property lender Duesseldorfer Hypothekenbank AG after it ran aground over Heta exposure.

The Heta move comes after Austria entered uncharted waters for debt markets last year by wiping out via a special law holders of nearly 900 million euros worth of Hypo subordinated debt despite guarantees from its home province of Carinthia.

That triggered lawsuits that the country’s Constitutional Court is set to rule on by October. 

Some creditors have said they are looking into taking legal steps over the Heta decision, and the FMA is preparing itself for legal action against its decisions.

Additional reporting by John O'Donnell and Frank Siebelt in Frankfurt. Editing by Carmel Crimmins

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below