Austria has announced it is halting payments on more than €11 billion ($12.28 billion) in debts of the failed Hypo Alpe-Adria-Bank International AG until it has found a way of winding down the bank without imposing more costs on taxpayers.
Bloomberg news reports that this is the first case under new European Union rules which imposes losses on bank bondholders.
Hypo ran into trouble in 2008 and has already cost Austrian taxpayers €5.5 billion. The latest announcement could lead to big losses for the bank’s creditors and could trigger lawsuits from investors seeking to recover some of their holdings.
The payment moratorium means that Austria will cut off support for Heta, a “bad bank” set up for Hypo’s remaining assets last year.
The decision was made after Heta notified the government it may need as much as €7.6 billion from taxpayers, the Finance Ministry said in a statement on Sunday.
Until the moratorium expires in May next year, Heta won’t pay interest on its debts either, Austria’s banking supervisor Finanzmarktagentur (FMA) said.
Heta’s predecessor Hypo Alpe was nationalized in 2009 after it was close to collapse because of bad loans in the western Balkans and shareholders led by Bayerische Landesbank walked away from the bank.
Its bail-out and wind down has been complicated by a string of court cases and by the fact that a large part of its debt is guaranteed by the state of Carinthia, a former owner of the bank.
The immediate debt moratorium means €950 million of bonds due on March 6th and March 20th won’t be repaid.
Putting Heta into resolution means there is no insolvency procedure, the FMA said. An insolvency would have made the sale of Heta’s remaining assets more difficult and led to higher losses for creditors, it added.