Passengers alight a tram in front of the State Opera in Vienna. Austria has offered to pay Bavaria at least €1.23bn ($1.36bn) to settle court cases relating to Austrian “bad bank” Heta.
Reuters/Vienna/Munich
Austria offered to pay the German state of Bavaria at least €1.23bn ($1.36bn) to settle a multitude of court cases relating to Austrian “bad bank” Heta, potentially ending years of acrimony between the neighbours.
An agreement would also ease uncertainty for Austrian taxpayers who have already poured more than €5.5bn into the failed bank and allow German lender BayernLB to draw a line under a series of ill-fated investments.
BayernLB, 75%-owned by Bavaria, bought a majority in the then Hypo Alpe Adria for €1.6bn in 2007, only to have it nationalised by Austria two years later after a Balkan expansion spree went awry.
Bavarian Finance Minister Markus Soeder said his state was unlikely to get a better deal even if it won every court case it was fighting, and he hoped to finalise a settlement by October.
The Bavarian bank was itself forced to take a €10bn bailout in the financial crisis. It needs to repay the last €2.3bn by 2019.
“It’s a step in the direction of a settlement,” Austrian chancellor Werner Faymann said yesterday.
Austria says the €1.23bn represent 45% of what a Munich court awarded BayernLB in a claim against Hypo Alpe Adria this year. Austria would add 45% of any gains Heta might make, said Vice-Chancellor Reinhold Mitterlehner.
The failure of Hypo, whose assets Heta is winding down, has sparked multiple lawsuits in Austria and Germany with claims and counter-claims amounting to about €16bn.
The bank’s expansion into frontier Balkan markets in the 2000s was fuelled by financing backed by its home province of Carinthia in southern Austria.
Nearly €900mn worth of junior debt issued by Hypo and guaranteed by Carinthia was wiped out by a special law that Austria passed last year, enraging investors who thought they had iron-clad state guarantees.
The law also mandated an €800mn contribution from BayernLB for Hypo costs.
Bavarian lawmaker Ernst Weidenbusch said the losses from the Hypo episode would come to just below €5bn.
An agreement may also open the door to settlement talks for other lenders with large Heta exposure such as Germany’s Pfandbriefbank, FMS Wertmanagement, Munich Re and Duesseldorfer Hypothekenbank.
Two consortia of banks, insurers and funds have sued Austria for a full repayment of their Heta bonds after Austria’s FMA financial watchdog took control of Heta in March and froze more than 11bn euros in debt repayments.
Austrian Finance Minister Hans Joerg Schelling said he hoped more deals could be struck.
“I think that it is an important signal to capital markets that we have arrived at a figure of below 50% in this settlement and that we are sending a signal as to where the limits are,” Schelling said.
People familiar with the Heta plaintiffs said, however, they saw the BayernLB case as unrelated to their law suit and said they would not accept a similar payout level.
