Austrian ‘Bad Bank’ Heta Reports $7.9 Billion Shortfall
By Boris Groendahl - 17/giu/2015 18:40:55
Heta Asset Resolution AG, the Austrian “bad bank” taken over by regulators, said its accounts for last year showed a capital shortfall of 7 billion euros ($7.9 billion), at the high end of its estimates published in March.
Heta, the Klagenfurt-based remnant of failed nationalized Hypo Alpe-Adria-Bank International AG, had total assets of 9.6 billion euros at the end of last year, against liabilities of 16.6 billion euros, the bank said in a statement Wednesday. Its net loss ballooned to 7.9 billion euros due to asset writedowns and the effect of spinning off its Italian and Balkan banks.
Heta’s predecessor Hypo Alpe, Austria’s worst bank failure in the 2008 financial crisis, nearly collapsed over bad loans in the former Yugoslavia and was nationalized in 2009. After 5.5 billion euros of state aid and growing voter discontent, Austria’s government halted further support in March. Austrian regulator FMA imposed a debt moratorium under new European Union rules, causing ripples among Heta’s Austrian and German creditors.
The figures confirm that “there was no alternative and a bankruptcy could be averted only by the” implementation of the EU’s BRRD procedures, the Finance Ministry said in a statement.
“The impact of the financial statements relate primarily to the creditors of Heta and will be solidified only after receipt of the final settlement decision by the FMA.”
Capital Shortfall
The capital shortfall and loss for last year were calculated according to Austrian accounting rules as the bank considers them to show a more accurate picture for creditors, Heta said in the statement. The consolidated loss according to international accounting rules was 7.4 billion euros and the capital shortfall 5.2 billion euros, Heta said.
Preliminary results of an asset review by Heta’s auditors published in March had shown a capital shortfall in a range of 4 billion euros to 7.6 billion euros, Heta said March 1. That finding triggered the Austrian government’s decision to halt all aid and the FMA takeover.
The FMA’s decision made Heta the first European bank to be wound down under the EU’s Bank Recovery and Resolution Directive, a new law designed to protect taxpayers from the cost of bank failures. Application of the BRRD law depends on the judgment that an insolvency would put financial stability at risk and make creditors worse off than an orderly procedure.
The main reasons for that finding was that the sale of Hypo Alpe’s “good bank” Hypo Group Alpe Adria AG to Advent International Corp and the European Bank for Reconstruction and Development hadn’t closed yet, the FMA said in its March 1 order. It could reverse the decision later, paving the way for insolvency, FMA co-President Klaus Kumpfmueller said.
FMA Review
The FMA will do its own review of Heta’s assets during the 15-month debt moratorium to determine how much creditors will have to contribute to the wind-down. Once the process is finished, it will impose a debt cut to cover the costs of Heta’s resolution. The capital shortfall reported by Heta today amounts to 42 percent of the liabilities.
The bail-in of Heta’s creditors, as well as an insolvency, is complicated by the fact that the Austrian province of Carinthia, a former owner of Hypo Alpe, has guaranteed more than 10 billion euros of debt still owed by Heta. That amount is more than four times Carinthia’s annual budget, and the province has warned it won’t be able to honor the guarantees.
Austrian Finance Minister Hans Joerg Schelling has refused to backstop Carinthia’s guarantees unless the province restructures the guarantees with creditors. The ministry and Carinthia last week set up a working group to consider scenarios for how to deal with them.
The main investors in Heta’s bonds are German state-owned banks, mortgage banks and insurers. One of the biggest non-German bondholders, Credit Foncier de France SA, said June 16 it sold its 260 million-euro exposure. Hedge funds including Palmerston Capital Management and Knighthead Capital Management have piled into the debt this year, three people with knowledge of the matter said in April.
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