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Bank Bail Ins Begin as EU Bank “Bailed In” In Austria
Bank Bail Ins Begin as EU Bank “Bailed In” In Austria
Bank bail ins in the EU are here after Austria’s financial markets regulator FMA imposed a hefty haircut on creditors in an Austrian bank. Creditors in the bank Heta Asset Resolution will receive less than half of their money back according to the country’s financial regulator, the FMA.
Senior bondholders in the so called “bad bank” could expect to receive around €0.46 for each euro which would be paid from the realisation of assets by 2020, according to the FMA statement. It said that this had been calculated using “very conservative” assumptions.
“This package of measures also ensures the equal treatment of creditors. Orderly resolution is more advantageous than insolvency proceedings,” the FMA said.
Bond maturities, however, will be extended to 31 December 2023 as “all currently outstanding legal disputes will realistically only be concluded by the end of 2023”. “Only at that point will it be possible to finally distribute the assets and to liquidate the company,” the regulator said.
In November 2015, the largest collection of creditors, which included Pacific Investment Management Co (PIMCO), Commerzbank , FMS Wertmanagement AoeR and a collection of distressed debt investors, proposed to extend bond maturities for 30 years in return for repayment in full.
Representatives of Austrian province Carinthia and creditors of the failed regional lender are to meet in London tomorrow to try to break the impasse over a bond buyback scheme, an Austrian newspaper reported. Carinthia, a southern Austrian province, guaranteed the debt of local lender Hypo Alpe Adria before the bank collapsed and now faces the threat of insolvency if it had to honour the 10.8 billion euro ($12.3 billion) debt in full.
Heta Asset Resolution was formed to wind down the bank but regulators froze Heta’s debt repayments after discovering a gaping capital hole at the bad bank.
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Austria Just Announced A 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules
Austria Just Announced A 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules
Just over a year ago, a black swan landed in the middle of Europe, when in what was then dubbed a “Spectacular Development” In Austria, the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.
Austria had previously nationalized Heta’s predecessor Hypo Alpe-Adria-Bank International six years ago after it nearly collapsed under the bad loans it ran up when it grew rapidly in the former Yugoslavia. Having burnt through €5.5 euros of taxpayers’ money to prop up Hypo Alpe, Finance Minister Hans Joerg Schelling ended support in March 2015, triggering the FMA’s takeover.
This was the first official proposed “Bail-In” of creditors, one that took place before similar ad hoc balance sheet restructuring would take place in Greece and Portugal in the coming months. Or rather, it wasn’t a fully executed “Bail-In” for the reason that creditors fought it tooth and nail.
And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.
The highlights from the announcement:
Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz über die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:
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The Austrian Black Swan Claims Its First Foreign Casualty: German Duesselhyp Collapses, To Be Bailed Out
The Austrian Black Swan Claims Its First Foreign Casualty: German Duesselhyp Collapses, To Be Bailed Out
Precisely one week ago in “A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe“, when analyzing the consequences of the collapse of Austria’s bad bank, we noted perhaps the biggest paradox of Europe’s emergency preparedness response to the Greek collapse and imminent expulsion from the Eurozone: namely that the biggest threat to German banks was no longer in some Mediterranean nation, but in its very own back yard. To wit:
Irony #2, and the biggest one of all: while German banks had spent the past 3 years preparing for the inevitable Grexit and offloading all their exposure to the now insolvent Greek state, it was a waterfall chain of events which started in Germany’s own “back yard”, courtesy of auditors who decided it was unnecessary to mark losses to market until it was far too late, and the immediate outcome is that one ninth of until recently Aaa/AAA-rated Austria is now also insolvent. And that is just the beginning.One can only imagine how many such other “0% risk-weighted” Pandora boxes lie in wait across what are otherwise considered Europe’s safest banks, provinces and nations.
Indeed, it was just the beginning, and moments ago we got confirmation that the next domino has tipped over, following a Reuters report that Germany’s deposit protection fund will take over the property lender Duesseldorfer Hypothekenbank AG (DuesselHyp), which has “run into problems” due to its exposure to Austrian lender Hypo Alpe Adria’s “bad bank” Heta.
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A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”
A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”
By far the most notable news of the past week, which has still gone largely unnoticed by the greater investing community whose focus instead was on whether algos would ramp the Nasdaq to 5000, and keep the S&P above 2100, even before Mario Draghi finally began buying bonds that nobody wants to sell, was the “Spectacular Development” In Austria, whereby the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.
This shocking announcement promptly sent the price of Heta bonds crashing as creditors, no longer enjoying the explicit guarantee of the state, scrambled to get out of “northern Europe’s” first Lehman moment.
But while the acute pain came and went for Heta bondholders who have seen a nearly 50% loss in just a few short months, the bigger and far more diffuse pain is only just starting, or as Bloomberg put it, “Austria’s decision to wind down Heta Asset Resolution AG sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany.”
The first casualty: the beautifully picturesque southern Austrian province of Carinthia.
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“Spectacular Developments” In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole “Discovered”
“Spectacular Developments” In Austria: Bail-In Arrives After €7.6 Billion Bad Bank Capital Hole “Discovered”
Slowly, all the lies of the “recovery”, all the skeletons in the closet, and all the bodies swept under the rug are emerging.
Moments ago, Austrian ORF reported that there have been “spectacular developments” in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta’s balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said.
As a result, according to Reuters, the bad bank that was created in the aftermath of the Hypo collapse, is itself about to be unwound, as the bad bank itself goes bad!
“Austria’s Financial Market Authority stepped in on Sunday to wind down “bad bank” Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria.”
In short: Austria just cut off state support of what was until this moment a state-backed, wind-down vehicle and a key pillar of trust in what was already a shaky financial system.
Not surprisingly, today’s shock announcement comes a week after Austria’s Standard reported that up to a five billion euro impairment at Heta would take place, a report which the Finance Ministry called “pure speculation” and noted that the Bank was in good health. According to Standard, among the reasons for the massive capital shortfall was the plunge in collateral as a result of the continuing crisis in South East Europe which meant that the value of “real estate in South East Europe, shopping centers and tourism projects, deteriorated massively” driven largely by the appreciation of the Swiss Franc. “As a result, the volume of bad loans has increased significantly.”
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