Monday 26 September 2016

Austria's top court overturns €1bn bank debt deal

Angelika Gruber and Christoph Steitz

Published 29/07/2015 | 02:30

Austria took over Hypo from its former owner BayernLB in 2009 to avert a collapse and prevent potential fallout in central and eastern Europe, where large parts of Hypo's business was based. Photo: Reuters
Austria took over Hypo from its former owner BayernLB in 2009 to avert a collapse and prevent potential fallout in central and eastern Europe, where large parts of Hypo's business was based. Photo: Reuters

Austria's highest court yesterday overturned a law that had cancelled nearly €1bn of debt owed by defunct bank Hypo Alpe Adria, raising chances that certain creditors could get some of their money back.

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But the decision deals a blow to the Austrian government's attempt to spread the cost of winding down Hypo, now known as "bad bank" Heta, after tax payers have already poured €5.5bn into the failed bank.

Austria took over Hypo from its former owner BayernLB in 2009 to avert a collapse and prevent potential fallout in central and eastern Europe, where large parts of Hypo's business was based.

The country's worst postwar financial scandal has swelled the state debt and budget deficit, soured ties with BayernLB owner Bavaria and prompted a parliamentary investigation into who is to blame for the mess.

The law overturned by Austria's Constitutional Court was passed last year and effectively cancelled €890m of subordinated debt guaranteed by Hypo's home province of Carinthia.

This produced howls of protest from investors and financial institutions, who thought they had iron-clad state guarantees ensuring they would get their money back.

"The Hypo Reorganisation Act is unconstitutional. It is repealed in its entirety," the Constitutional Court said in a statement, ruling that public guarantees could not simply be erased retroactively.

The creditors include Austrian insurers Uniqa and Vienna Insurance as well as the World Bank and German investment funds.

The law also required an €800m payment from German state bank BayernLB which has since struck a tentative €1.2bn settlement with Austria over the case.

The court's decision is independent from action taken by Austria's Financial Market Authority in March to impose a moratorium on debt repayments by Heta.

Austria's Finance Ministry said that the moratorium, affecting €9.85bn worth of Heta debt, was still in place.

The Finance Ministry also said the court ruling had no impact on the process of winding down Heta, which was set up last year to take on Hypo's assets, valued at the time at €18bn.

Constitutional Court Chief Justice Gerhart Holzinger told reporters he expected his court to handle any lawsuits over the moratorium, which runs until May 2016.

Irish Independent

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