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Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare

July 28, 2015

Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare

The subject of bail-ins and bank resolutions is back in the news this month as every eurocrat in Brussels scrambles to determine the best way to recapitalize Greece’s ailing banking sector, which, you’re reminded, is sinking further into insolvency with each passing day thanks to the unyielding upward pressure on NPLs that’s part and parcel the country’s outright economic collapse.

And while you could be forgiven for focusing squarely on the trainwreck that’s occurring in Athens, it would be a mistake to ignore the fact that just a few months back, a black swan landed in Austria when a €7.6 billion capital hole was “discovered” in Heta Asset Resolution, the vehicle set up to resolve the now defunct lender Hypo Alpe-Adria-Bank.

In short, the bad bank went bad, and when it became clear that no further state support was forthcoming, Heta Asset Resolution was itself put into resolution and a moratorium on bond payments was declared.

The debacle raised a number of troubling issues not the least of which involves the beautifully picturesquesouthern Austrian province of Carinthia, which had guaranteed some €10 billion worth of Heta debt despite the rather inconvenient fact that annual provincial revenues only amount to around €2.3 billion.

 

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